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Justice Department Recovers Over $4.7 Billion From False Claims Act Cases in Fiscal Year 2016

The Department of Justice obtained more than $4.7 billion in settlements and judgments from civil cases involving fraud and false claims against the government in fiscal year 2016 ending Sept. 30, Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division, announced today.  This is the third highest annual recovery in False Claims Act history, bringing the fiscal year average to nearly $4 billion since fiscal year 2009, and the total recovery during that period to $31.3 billion.

“Congress amended the False Claims Act 30 years ago to give the government a more effective tool against false and fraudulent claims against federal programs,” said Mizer.  “An astonishing 60 percent of those recoveries were obtained in the last eight years.  The beneficiaries of these efforts include veterans, the elderly, and low-income families who are insured by federal health care programs; families and students who are able to afford homes and go to college thanks to federally insured loans; and all of us who are protected by the government’s investment in national security and defense.  In short, Americans across the country are healthier, enjoy a better quality of life, and are safer because of our continuing success in protecting taxpayer funds from misuse.”

Of the $4.7 billion recovered, $2.5 billion came from the health care industry, including drug companies, medical device companies, hospitals, nursing homes, laboratories, and physicians.  The $2.5 billion recovered in fiscal year 2016 reflects only federal losses.  In many of these cases, the Department was instrumental in recovering additional millions of dollars for state Medicaid programs.  This is the seventh consecutive year the Department’s civil health care fraud recoveries have exceeded $2 billion.

The next largest recoveries came from the financial industry in the wake of the housing and mortgage fraud crisis.  Settlements and judgments in cases alleging false claims in connection with federally insured residential mortgages totaled nearly $1.7 billion in fiscal year 2016 – the second highest annual recovery in this area.

The False Claims Act is the government’s primary civil remedy to redress false claims for government funds and property under government programs and contracts relating to such varied areas as health care, defense and national security, food safety and inspection, federally insured loans and mortgages, highway funds, small business contracts, agricultural subsidies, disaster assistance, and import tariffs.  In 1986, Congress strengthened the Act by amending it to increase incentives for whistleblowers to file lawsuits alleging false claims on behalf of the government.

Most false claims actions are filed under those whistleblower, or qui tam, provisions.  If the government prevails in the action, the whistleblower, also known as the relator, receives up to 30 percent of the recovery.  Whistleblowers filed 702 qui tam suits in fiscal year 2016, and the Department recovered $2.9 billion in these and earlier filed suits this past year.  The government awarded the whistleblowers $519 million during the same period.

Health Care Fraud

The Department recovered $19.3 billion in health care fraud claims from January 2009 to the end of fiscal year 2016 – 57 percent of the health care fraud dollars recovered in the 30 years since the 1986 amendments to the False Claims Act.  These recoveries restore valuable assets to federally funded programs such as Medicare, Medicaid, and TRICARE, the health care program for service members and their families.  But just as important, the Department’s vigorous pursuit of health care fraud prevents billions more in losses by deterring others who might otherwise try to cheat the system for their own gain.  The Department’s success is a direct result of the high priority the Obama Administration has placed on fighting health care fraud.  In 2009, the Attorney General and the Secretary of the Department of Health and Human Services, the Department that administers Medicare and Medicaid, announced the creation of an interagency task force called the Health Care Fraud Prevention and Enforcement Action Team (HEAT), to increase coordination and optimize criminal and civil enforcement.  Additional information on the government’s efforts in this area is available at StopMedicareFraud.gov, a webpage jointly established by the Departments of Justice and Health and Human Services.

The largest recoveries this past year – $1.2 billion – came from the drug and medical device industry.  Drug manufacturers Wyeth and Pfizer Inc. paid $784.6 million to resolve federal and state claims that Wyeth knowingly reported false and fraudulent prices on two drugs used to treat acid reflux, Protonix Oral and Protonix IV.  The government alleged that Wyeth (before it was acquired by Pfizer) failed to report deep discounts available to hospitals, as required by the government to ensure that the Medicaid program enjoyed the same pricing benefits available to the company’s commercial customers.  Wyeth paid $413.2 million to the federal government and $371.4 million to state Medicaid programs.

In another settlement against a drug company, Novartis Pharmaceuticals Corp. paid $390 million based on claims that the company gave kickbacks to specialty pharmacies in return for recommending Exjade, an iron chelation drug, and Myfortic, an anti-rejection drug for kidney transplant recipients.  The settlement includes $306.9 million for the federal government and $83.1 million for state Medicaid programs.

Hospitals and outpatient clinics accounted for $360 million in recoveries.  Tenet Healthcare Corp., a major hospital chain in the United States, paid $244.2 million to resolve civil allegations that four of its hospitals engaged in a scheme to defraud the United States by paying kickbacks in return for patient referrals.  Tenet paid an additional $123.7 million to state Medicaid programs, and two of its subsidiaries pleaded guilty to related charges and forfeited $145 million, bringing the total resolution to $513 million.

In the medical lab arena, Millennium Health (formerly Millennium Laboratories) paid $260 million to settle allegations that it billed Medicare, Medicaid, and other federal health care programs for excessive and unnecessary urine drug and genetic testing and also that it gave free items to induce physicians to refer expensive and profitable lab tests to Millennium, in violation of the Anti-Kickback Statute and Stark Law.  The settlement included $214.8 million in alleged false claims against federal programs, $26 million in alleged false claims against state Medicaid programs, and $19.2 million in related administrative claims.

The nation’s largest contract therapy provider paid $125 million to resolve claims that it had induced skilled nursing homes to submit false claims to Medicare for rehabilitation services that were not reasonable, necessary, and skilled, or that weren’t provided at all.  The settlement was with RehabCare Group Inc., RehabCare Group East Inc., and their parent, Kindred Healthcare Inc.  Cases involving nursing homes and skilled nursing facilities accounted for more than $160 million in settlements and judgments this past fiscal year.

“These health care recoveries benefit vulnerable citizens in Medicare and Medicaid and the taxpayers who pay for those programs,” said Inspector General Daniel R. Levinson of the U.S. Department of Health and Human Services.  “Beyond those significant settlements, though, my agency works to improve voluntary observance of federal laws through corporate integrity agreements addressing compliance weaknesses, and self-disclosures that encourage health care providers and other entities to voluntarily report suspected violations.”

Housing and Mortgage Fraud

The Department recovered more than $7 billion in housing and mortgage claims from January 2009 to the end of fiscal year 2016, including settlements and judgments totaling $1.6 billion this past fiscal year – the second highest annual recovery in the history of the federally insured mortgage program.  Notable this year were settlements with Wells Fargo for $1.2 billion and Freedom Mortgage Corp. for $113 million.

Wells Fargo and Freedom Mortgage both admitted that they had originated and endorsed residential mortgages as eligible for federal insurance by the Federal Housing Administration (FHA) that did not meet requirements intended to reduce the risk of default.  This put consumers at risk of losing their homes in foreclosure and increased the number of claims against the FHA when their loans went into default.  The banks also admitted failing to report such deficiencies to the authorities as required under the program, despite internal reports exposing high rates of underwriting deficiencies that would have put the agency on notice so it could prevent continued program violations and mounting losses.  By originating and endorsing ineligible loans for FHA insurance, the banks increased their mortgage profits at taxpayer expense while incurring little or no risk of their own.

As part of the Wells Fargo settlement, the bank’s vice president of Credit Risk – Quality Assurance, Kurt Lofrano, admitted that he annually certified Wells Fargo’s compliance with FHA’s Direct Endorsement Lender program and the bank’s continued qualification to remain in the program.

These recoveries are part of the broader enforcement efforts by President Obama’s Financial Fraud Enforcement Task Force.  President Obama established the interagency task force in 2009, to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes.  The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.  The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.  For more information about the task force, visit www.stopfraud.gov.

Other Fraud Recoveries

Although health care and mortgage fraud dominated fiscal year 2016 recoveries, the Department has aggressively pursued fraud wherever it is found in federal programs and contracts.  For example, the Department recovered $82.6 million in false claims from BP Exploration and Production Inc. (BP) arising from the April 2010 Deepwater Horizon/Macondo Well explosion and oil spill in the Gulf of Mexico.  The government, through the Department of the Interior, leases portions of the Outer Continental Shelf to companies like BP that operate exploratory oil wells.  In exchange for the lease, the operators pay royalties based on the volume of oil extracted from the wells.  Program regulations applicable to exploration of the Outer Continental Shelf require well operators to maintain a “safe drilling margin” and to report plans to drill further into an open hole if the margin falls below legal limits.  The government alleged that BP provided false reports about its “safe drilling margin” that concealed its improper drilling, which left the well in a fragile state and ultimately resulted in the blowout.  The government’s civil fraud claims were part of a $20 billion consent decree reached with the United States and five Gulf states that also included damages and penalties under state and federal environmental laws, mandatory restoration of the area, and other relief.

The government also continued to pursue a variety of procurement fraud matters.  For example, L-3 Communications EOTech Inc. and its parent company, L-3 Communications Corp., paid the United States $25.6 million for defective holographic weapon sites EOTech sold to the Department of Defense, Department of Homeland Security, and FBI.  The defendants, including EOTech’s president, admitted knowing the sights failed to perform as represented in cold temperatures and humid environments, but delayed disclosing the defects to federal authorities for years.  Besides compensating the government for critical funds lost through fraud, such settlements ensure that the vital terms of contracts supporting the nation’s defense and security agencies are enforced, and deter other contractors from acting fraudulently or recklessly to increase their profits in the future.

The Department had several settlements with for-profit schools that allegedly participated in illegal schemes to secure federal education funds.  For example, the second largest for-profit education company in the country, Education Management Corp., paid the United States $52.6 million to resolve allegations that it unlawfully recruited students, engaged in deceptive and misleading recruiting practices, and falsely certified compliance with Title IV of the Higher Education Act and parallel state laws that prohibited such conduct, as part of a $95.5 million global federal-state settlement.

The Department also recovered $50 million in customs fraud.  U.S. Customs and Border Protection collects duties on imports of foreign goods to protect U.S. manufacturers from unfair competition abroad by leveling the playing field for domestic products.  Importers who seek an unfair advantage by knowingly evading or reducing their obligation to pay these duties are subject to damages and penalties under the False Claims Act.  These recoveries both address lost duties and safeguard U.S. markets.

These suits and settlements illustrate the diversity of cases pursued by the Department and the Department’s quest to root out fraud and false claims against the government wherever it may be found.

Holding Individuals Accountable    

On Sept. 9, 2015, the Department issued a memorandum on individual accountability for corporate wrongdoing.  This memorandum reinforced the Department’s commitment to use the False Claims Act and other civil remedies to deter and redress fraud by individuals as well as corporations.

Cardiologist Dr. Asad Qamar and his practice, the Institute of Cardiovascular Excellence (ICE), paid $2 million this past fiscal year, and released claims to an additional $5.3 million in suspended Medicare funds, to settle allegations that he and his practice billed Medicare, Medicaid, and TRICARE for medically unnecessary procedures and paid kickbacks to patients by waiving Medicare copayments irrespective of financial hardship.  Medicare copayments provide beneficiaries with an incentive to be smart health care consumers and avoid unnecessary procedures.  The government alleged that by waiving the required copayments indiscriminately, Dr. Qamar and ICE induced patients to undergo unnecessary and invasive procedures.  This conduct made Dr. Qamar the highest paid Medicare cardiologist in the United States in 2012 and 2013.  Dr. Qamar also agreed to a three-year exclusion from participating in any federal health care program followed by a three-year integrity agreement with the Department of Health and Human Services Office of the Inspector General.

Additional examples of individuals held personally liable for alleged false claims include George Hepburn ($10.3 million), founder and president of Dynasplint Systems Inc.; Dr. Jonathan Oppenheimer ($9.35 million), former owner and chief executive officer of a Nashville drug testing laboratory; Gottfried and Mieke Kellermann ($8.5 million), founders of Pharmasan Labs Inc. and NeuroScience Inc.; Jacob (Jake) J. Kilgore ($4 million), former co-owner, vice president, and later president of Orbit Medical Inc.; Dr. David G. Bostwick ($3.75 million), founder and former owner and chief executive officer of Bostwick Laboratories Inc.; Mark T. Conklin ($1.75 million), former owner, operator, and sole shareholder of Recovery Home Care Inc. and Recovery Home Care Services Inc.; Dr. David Spellberg ($1.05 million) and Robert A. Scappa, D.O. ($250,000), urologists with 21st Century Oncology LLC; and Ralph J. Cox III ($1 million), former chief executive officer of Tuomey Healthcare System.

Recoveries in Whistleblower Suits

Of the $4.7 billion the government recovered in fiscal year 2016, $2.9 billion related to lawsuits filed under the qui tam provisions of the False Claims Act.  During the same period, the government paid out $519 million to the individuals who exposed fraud and false claims by filing a qui tam complaint.

The number of lawsuits filed under the qui tam provisions of the Act has grown significantly since 1986, with 702 qui tam suits filed this past year – an average of 13.5 new cases every week.  The growing number of qui tam lawsuits, particularly since 2009, has led to increased recoveries.  From January 2009 to the end of fiscal year 2016, the government recovered nearly $24 billion in settlements and judgments related to qui tam suits and paid more than $4 billion in whistleblower awards during the same period.

“The qui tam provisions provide a valuable incentive to industry insiders who are uniquely positioned to expose fraud and false claims to come forward despite the risk to their careers,” said Principal Deputy Assistant Attorney General Mizer.  “This takes courage, for which they are justly rewarded under the Act.”

In 1986, Senator Charles Grassley and Representative Howard Berman led the successful efforts in Congress to amend the False Claims Act to, among other things, encourage whistleblowers to come forward with allegations of fraud.  In 2009, Senator Patrick J. Leahy, along with Senator Grassley and Representative Berman, championed the Fraud Enforcement and Recovery Act of 2009, which made additional improvements to the False Claims Act and its whistleblower provisions.  And in 2010, the passage of the Affordable Care Act provided additional inducements and protections for whistleblowers.

Mizer also expressed his deep appreciation for the many dedicated public servants who investigated and pursued these cases – the attorneys, investigators, auditors, and other agency personnel throughout the Department’s Civil Division and the U.S. Attorneys’ Offices, as well as the agency Offices of Inspector General, and the many federal and state agencies that contributed to the Department’s recoveries this past fiscal year.

“The Department’s lawyers and staff, together with our law enforcement partners in federal and state governments, work tirelessly and often overcome daunting challenges,” said Mizer. “Their efforts continue to pay for themselves many times over, providing substantial benefits to the taxpayers.”

The government’s claims in the matters described above are allegations only; except where indicated, there has been no determination of liability.

Attorney General Kamala D. Harris, 42 Other Attorneys General, Announce $19.5 Million Settlement with Pharmaceutical Company Bristol-Myers Squibb Over Unlawful Promotion of Abilify Drug

California Attorney General Kamala D. Harris recently announced that California, along with 42 other states and the District of Columbia, has reached a $19.5 million agreement with biopharmaceutical company Bristol-Myers Squibb over allegations that the company illegally marketed the popular atypical antipsychotic drug Abilify. Attorney General Harris secured $1.3 million of the overall settlement for California.

In 2009, California and other states launched a multistate consumer protection investigation of Otsuka America Pharmaceutical, Inc., which manufactures Abilify, and Bristol-Myers Squibb, which is largely responsible for promoting Abilify. The states’ investigation found that Bristol-Myers Squibb engaged in off-label marketing by illegally promoting Abilify for therapeutic uses for which it was not approved, such as certain pediatric uses and to treat dementia. In addition to incentivizing sales representatives to engage in off-label marketing, the investigation found that the company misled doctors and patients about the drug’s risks and side effects and misrepresented the findings of scientific studies concerning the drug in marketing messages.

“These companies endangered and compromised the health and well-being of millions of Americans in order to turn a profit,” said Attorney General Harris. “This settlement makes clear that pharmaceutical companies using deceptive and unlawful tactics to promote drugs will not be tolerated in the United States.”

Abilify is approved by the Food and Drug Administration to treat schizophrenia, bipolar disorder, major depressive disorder, and Tourette’s disorder. Abilify, known as a blockbuster drug because of its popularity, generated $5.5 billion in sales in 2014, with Bristol-Myers Squibb receiving approximately $2.02 billion of that amount.

The settlement places strict rules on how Bristol-Myers Squibb can promote and market Abilify going forward, including prohibiting the company from promoting the drug for off-label uses, compensating health care providers for promotional activities without disclosing their connection to the company, using medical grants to promote the drug, and making unsubstantiated safety or efficacy comparisons between Abilify and other products.

In addition, under the terms of the agreement, Bristol-Myers Squibb must provide only accurate and scientifically balanced information about Abilify, conspicuously disclose risks, and take clear steps to ensure it is not creating financial incentives for promotion, sales, and marketing that would violate the law.

Attorney General Kamala D. Harris has a longstanding record of prosecuting illegal and deceptive marketing and sales of prescription drugs.

In September 2016, Attorney General Kamala Harris and 35 other Attorneys General filed a lawsuit against Indivior, a British pharmaceutical company, and MonoSolRX, an Indiana pharmaceutical film technology company, for engaging in a “product-hopping” scheme to block competition to Suboxone, an opioid addiction treatment, ultimately generating almost one billion dollars in undeserved profits.

In May 2016, Attorney General Harris filed a lawsuit against Johnson & Johnson for false advertising and deceptive marketing of its surgical mesh products for women, alleging that the company neglected to inform both patients and doctors of possible severe complications and misrepresented the frequency and severity of risks.

Last year, Attorney General Harris along 48 other states and the District of Columbia reached a $71 million settlement with the pharmaceutical company Amgen Inc. to resolve allegations that Amgen unlawfully promoted biologic medications Aranesp and Enbrel. California received $4.6 million from the settlement. The consent judgment required Amgen to reform its marketing and promotional practices and refrain from making deceptive or misleading claims in promoting Enbrel or any drug in the same class as Aranesp.

South Miami Hospital Agrees to Pay the United States $12 Million to Settle False Claims Act Allegations

South Miami Hospital, a not-for-profit regional hospital located in South Miami, Florida has agreed to pay the United States approximately $12 million to settle allegations that it violated the False Claims Act by submitting false claims to federal healthcare programs for medically unnecessary electrophysiology studies and other procedures allegedly performed by John R. Dylewski, M.D., at South Miami Hospital.

Wifredo A. Ferrer, United States Attorney for the Southern District of Florida, Shimon R. Richmond, Special Agent in Charge, U.S. Department of Health and Human Services, Office of Inspector General (HHS-OIG), Miami Region, John F. Khin, Special Agent in Charge, Defense Criminal Investigative Service (DCIS), Southeast Field Office, and Scott Rezendes, Special Agent in Charge, Office of Personnel Management, Office of Inspector General (OPM-OIG), made the announcement.

“This settlement shows our continued resolve to pursue institutional providers who turn a blind eye to the systematic overutilization of medical procedures and inflated billing practices resulting in significantly increased costs to the federal government,” said Wifredo A. Ferrer, United States Attorney for the Southern District of Florida.

“This settlement highlights the commitment of the Defense Criminal Investigative Service (DCIS) and its law enforcement partners to protect the integrity of the Department of Defense (DoD) health care program known as TRICARE,” said DCIS Special Agent in Charge John F. Khin.  “DCIS aggressively investigates health care providers that defraud the DoD, to preserve American taxpayer dollars intended to care for our warfighters, their family members, and military retirees.”

“Performing medically unnecessary heart procedures is shocking to the conscience,” said Shimon R. Richmond, HHS-OIG Miami Special Agent in Charge. “Conducting cardiac catheterizations purely for profit, not patient care, seriously breaches the “do no harm” commitment physicians pledge. Together with our law enforcement partners, we will seek out, stop these practices and protect the Medicare patients who are victimized by physicians participating in these schemes.”

“It is absolutely unconscionable that anyone in the medical profession would place profit above a patient’s health and well-being,” said OPM-OIG Special Agent in Charge Rezendes.  “We remain firmly committed to ensuring that Federal employees, annuitants, and their families are protected and that such unscrupulous behavior is identified and stopped.”

The allegations arose from a lawsuit filed by two whistleblowers, James A. Burks, M.D., and James D. Davenport, M.D., under the qui tam provisions of the False Claims Act.  Relator Burks is a board-certified vascular surgeon and medical doctor who began his practice as a vascular surgeon at South Miami Hospital in 2003.  Relator Davenport is a board-certified cardiologist and medical doctor, who was an active member of various peer review committees at South Miami Hospital between 2010 and 2014.  Under the False Claims Act, private citizens can bring suit on behalf of the government for false claims and share in any recovery.  Drs. Burks and Davenport will receive approximately $ 2,748,500 from the recovery announced today.

According to court documents, plaintiffs claimed to have personal knowledge of Dr. Dylewski and South Miami Hospital engaging in a number of unnecessary cardiac procedures, including echocardiograms, electrophysiology studies, head upright tilt tests, and other treatments of arrhythmia by ablation, cryoablation, or implantation of an electronic device, for the sole purpose of increasing the amount of physician and hospital reimbursements paid by Medicare and other federally-funded programs.

The settlement was the result of a coordinated effort by the United States Attorney’s Office for the Southern District of Florida, HHS-OIG, DCIS, and OPM-OIG.  The case was investigated and the settlement negotiated by Assistant U.S. Attorney John C. Spaccarotella.

The case is captioned United States of America ex. rel. James A. Burks, M.D. and James D. Davenport, M.D. v. John R. Dylewski, M.D., et al., Case No. 14-CV-22079 (S.D. Fla.).  The claims settled by the lawsuit are allegations only, and there has been no determination of liability.

United States Settles False Claims Act Allegations Against Orthopedic Surgery Practice For $4,488,000

On Wednesday, United States Attorney A. Lee Bentley, III announced that Southeast Orthopedic Specialists (SOS), a Jacksonville, Florida-based orthopedic medical group, has agreed to pay the government $4.488 million to resolve allegations that it violated the False Claims Act.

The United States contends that it has certain civil claims against SOS arising from SOS billing federal healthcare programs for services that were not medically necessary and reasonable. Specifically, the United States contends that SOS sought reimbursement for millions of dollars of healthcare claims that were questionable. The United States alleges that these questionable bills include:

1.  SOS certified that it met certain standards related to the “meaningful use” of electronic health records when the practice had, in fact, not met those standards;

2. SOS knowingly billed for certain claims as “incident to” physician supervision when no physician was present or there was no verification of any physician being present;

3.  SOS knowingly billed for certain claims using Modifier 25 signifying that a separate evaluation and management service was performed even when there was no such separate service;

4.  SOS knowingly billed for certain claims using Modifier 59 signifying that two procedures, rather than one, were billable even when these procedures should have more appropriately been billed as one such procedure;

5.  SOS knowingly scheduled patients’ follow-up operative visits from 12 weeks following surgery to 14 weeks in an effort to bill for a separate visit outside the normal Medicare 90 days Diagnosis-Related Group charge;

6.  SOS knowingly used and billed for ultrasound-guided injections routinely even in the absence of medical necessity; and

7.  SOS knowingly billed for certain physical therapy claims using Modifier KX so as to exceed the Medicare cap on physical therapy, despite the absence of medical necessity.

“The United States Attorney’s Office is committed to taking the steps necessary to protect Medicare and other federal health care programs from fraud,” said U.S. Attorney Bentley. “When health care practitioners submit fraudulent claims for reimbursement, we will hold them accountable.”

“The Department of Health and Human Services, Office of Inspector General will relentlessly seek out those who defraud the Medicare program,” said Special Agent in Charge Shimon Richmond.  “Obtaining tax dollars which Medicare providers are not entitled to impacts our entire healthcare system and the OIG will hold health care providers accountable who misrepresent services to boost profits.”

This settlement illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of Health and Human Services. The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation. One of the most powerful tools in this effort is the False Claims Act. Since January 2009, the Justice Department has recovered a total of more than $31.6 billion through False Claims Act cases, with more than $19.2 billion of that amount recovered in cases involving fraud against federal health care programs.

This matter was investigated by the U.S. Department of Health and Human Services. It was prosecuted by Assistant United States Attorney Jason Mehta.

The claims resolved by this settlement are allegations only, and there has been no determination of liability.

If you know of or suspect health care fraud, contact us now.

SEC Issues $20 Million Whistleblower Award

Yesterday, the Securities and Exchange Commission announced an award of more than $20 million to a whistleblower who promptly came forward with valuable information that enabled the SEC to move quickly and initiate an enforcement action against wrongdoers before they could squander the money.

The $20 million award is the third-highest since the SEC’s whistleblower program issued its first award in 2012.  The program has now awarded more than $130 million to whistleblowers who voluntarily provided the SEC with unique and useful information that led to a successful enforcement action.

By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.

“This whistleblower alerted us with a valuable tip that led to a near total recovery of investor funds.  Sizeable awards like this one should encourage whistleblowers everywhere that there are real financial incentives to promptly reporting potential securities law violations to the SEC,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower.

Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million.  All payments are made out of an investor protection fund established by Congress that is financed through monetary sanctions paid to the SEC by securities law violators.  No money has been taken or withheld from harmed investors to pay whistleblower awards.

Aerospace Parts Manufacturer Pays $2.7 Million to Settle Lawsuit Alleging it Failed to Perform Required Inspections on Parts

Air Industries Corporation (AIC), a Garden Grove-based aerospace parts company, has paid the United States $2.7 million to resolve allegations that it falsely certified it had performed required inspections on aerospace parts used in military aircraft, spacecraft and missiles used by the Department of Defense.

AIC, which manufactures and distributes bolts, screws and aerospace fasteners, paid the money on September 7, and United States District Judge James V. Selna dismissed the case on September 22. The matter was announced after Judge Selna this week unsealed the lawsuit that led to the settlement.

The government alleged that, between June 2010 and September 2013, AIC falsely certified it had performed certain non-destructive testing on aerospace parts, including magnetic particle inspections and liquid penetrant inspections. The parts manufactured by AIC were sold to major aerospace contractors, who used the parts in the manufacture of aircraft and other equipment sold to the United States.

“Every company that does business with the United States has a duty and responsibility to honor it contracts, especially in ensuring equipment produced is safe and suitable for use,” said United States Attorney Eileen M. Decker. “The Department of Justice is committed to protecting investments made by taxpayers in contracts with private entities, especially when it comes to the purchase of equipment used in our national defense.”

Chris Hendrickson Special Agent in Charge of the Defense Criminal Investigative Service (DCIS), Western Field Office, said, “This settlement is representative of quality, uncompromising work by DCIS and the U.S. Attorney’s Office to ensure the integrity of the Department of Defense procurement process by penalizing government vendors who choose profit over quality and, in some circumstances, safety. DCIS and our partners will steadfastly pursue anyone who attempts to perpetuate schemes to defraud the Department of Defense and comprise our nation’s security.”

The settlement resolves allegations initially made in a “whistleblower” lawsuit filed in late 2012 by an employee of AIC. The lawsuit was filed under the qui tam provisions of the False Claims Act, which permit private individuals to sue on behalf of the government for false claims and to share in any recovery. The Act also allows the government to intervene and take over the action, as it did in this case. The employee who filed the qui tam action will receive $621,000 of the recovered funds.

The claims resolved by the settlement are allegations and AIC did not admit liability. The whistleblower is still pursuing several employment-based claims against AIC.

The government’s investigation was conducted by the U.S. Department of Defense, Office of the Inspector General and the U.S. Attorney’s Office.

Reno Geothermal Power Plant Operator Enters Into $5.5 Million Settlement With DOJ Over Grant Fraud Allegations

Several Reno companies that operate geothermal power plants in Nevada, California, Hawaii and elsewhere, have agreed to pay the United States $5.5 million to resolve civil fraud allegations that they unlawfully applied for and received millions in federal clean energy grants, announced U.S. Attorney Daniel G. Bogden for the District of Nevada.

Ormat Technologies, Inc., Ormat Nevada, Inc., Puna Geothermal Venture II, L.P., ORNI 18, LLC, and Puna Geothermal Venture, G.P. (hereinafter referred to as Ormat), and the United States entered into the agreement to avoid the delay and uncertainty and expense of protracted litigation.  The agreement states that it is neither an admission of liability by the defendants nor a concession by the United States that its claims are not well founded.

“The False Claims Act is an effective civil tool to ferret out fraud in federal taxpayer-funded programs,” said U.S. Attorney Bogden.  “The settlement monies announced today will be deposited into a federal fund used to help crime victims and for a variety of other law enforcement purposes.”

The settlement agreement, effective this week, arises out of a civil lawsuit filed on Feb. 4, 2013 by Tina Calilung and Jamie Kell against Ormat alleging that they violated the civil False Claims Act by submitting false applications for federal clean energy grants to which they were not entitled. The defendant companies are based in Reno, Nev. Calilung and Kell are former employees of Ormat Technologies.

The lawsuit alleged that the federal government had claims against the defendant arising from the submission of applications for and receipt of grants under the American Recovery and Reinvestment Tax Act of 2009, related to the 8MW Puna Geothermal Power Plant and Puna KS-14 Well, both on the island of Hawaii, and the North Brawley Geothermal Power Plant in Imperial County, Calif.

Since January 2009 and through the end of federal fiscal year 2015, the Justice Department has recovered a total of more than $26.4 billion from cases involving fraud and false claims against the government. The False Claims Act is the government’s primary civil remedy to redress false claims for government funds and property under government contracts, including national security and defense contracts, as well as under government programs as varied as Medicare, veterans’ benefits, federally insured loans and mortgages, highway funds, research grants, agricultural supports, school lunches, and disaster assistance.  In 1986, Congress strengthened the Act by amending it to increase incentives for whistleblowers to file lawsuits on behalf of the government.

Most false claims actions are filed under the Act’s whistleblower, or qui tam, provisions that allow individuals to file lawsuits alleging false claims on behalf of the government.  If the government prevails in the action, the whistleblower, also known as the relator, receives up to 30 percent of the recovery.  Whistleblowers filed 638 qui tam suits in fiscal year 2015 and the department recovered $2.8 billion in these and earlier filed suits this past year.  Whistleblower awards during the same period totaled $597 million.  https://www.justice.gov/opa/pr/justice-department-recovers-over-35-billion-false-claims-act-cases-fiscal-year-2015.

Assistant United States Attorney Roger Wenthe handled the case on behalf of the U.S. Attorney’s Office for the District of Nevada.

Omnicare to Pay Over $28 Million to Settle Kickback Allegations

The nation’s largest nursing home pharmacy, Omnicare Inc., has agreed to pay $28.125 million to resolve allegations that it solicited and received kickbacks from pharmaceutical manufacturer Abbott Laboratories in exchange for promoting the prescription drug, Depakote, for nursing home patients.  CVS Health Corporation, which is headquartered in Rhode Island, acquired Ohio-based Omnicare in 2015, approximately six years after Omnicare ended the conduct that gave rise to the settlement.

“Every day, elderly nursing home residents suffering from dementia rely on the independent judgment of our nation’s healthcare professionals for their personal care and their medical treatment,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Department of Justice’s Civil Division.  “Kickbacks to entities making drug recommendations compromise their independence and undermine their role in protecting nursing home residents from the use of unnecessary drugs.”

Nursing homes rely on consultant pharmacists, such as those employed by Omnicare, to review their residents’ medical charts at least monthly and make recommendations to their physicians about what drugs should be prescribed for those residents.  The settlement announced today resolves allegations that Omnicare solicited and received kickbacks from Abbott in exchange for recommending that physicians prescribe Depakote, an anti-epileptic drug manufactured by Abbott, to elderly nursing home residents.

According to the government’s complaint, Omnicare disguised the kickbacks it received from Abbott in a variety of ways.  Abbott allegedly made payments to Omnicare described as “grants” and “educational funding,” even though their true purpose was to induce Omnicare to recommend Depakote.  For example, Omnicare allegedly solicited substantial contributions from Abbott and other pharmaceutical manufacturers to its “Re*View” program.  Although Omnicare claimed that Re*View was a “health management” and “educational” program, the complaint alleges that it was simply a means by which Omnicare solicited kickbacks from pharmaceutical manufacturers in exchange for increasing the utilization of their drugs on elderly nursing home residents.  In internal documents, Omnicare allegedly referred to Re*View as its “one extra script per patient” program.  The complaint also alleges that Omnicare entered into agreements with Abbott by which Omnicare was entitled to increasing levels of rebates from Abbott based on the number of nursing home residents serviced and the amount of Depakote prescribed per resident.  Finally, the complaint alleges that Abbott funded Omnicare management meetings on Amelia Island, Florida, offered tickets to sporting events to Omnicare management and made other payments to local Omnicare pharmacies.

In May 2012, the United States, numerous states and Abbott entered into a $1.5 billion global civil and criminal resolution that, among other things, resolved Abbott’s liability under the False Claims Act for alleged kickbacks to nursing home pharmacies, including Omnicare and PharMerica Corp.  In October 2015, PharMerica agreed to pay $9.25 million to the United States and numerous states to resolve civil liability under the False Claims Act for the alleged kickbacks from Abbott.  The settlement announced today resolves Omnicare’s role in that alleged kickback scheme.

“This settlement ensures that some of the most vulnerable amongst us, those suffering from dementia, are provided with the level of care they deserve,” said U.S. Attorney John P. Fishwick Jr. for the Western District of Virginia.  “Families and loved ones who make the difficult decision to place those they care about into a nursing home must do so with the confidence that medical decisions are being made with the interests of the patient in mind, not big drug companies.”

Approximately $20.3 million of the settlement will go to the United States, while $7.8 million has been allocated to cover Medicaid program claims by states that elect to participate in the settlement.  The Medicaid program is jointly funded by the federal and state governments.

“It is disturbing that any health care corporation would pay kickbacks that corrupt the professional medical decision making process in order to pad their profits,” said Special Agent in Charge Nicholas DiGiulio of the Department of Health and Human Services Office of Inspector General (HHS OIG).  “These practices are unacceptable and will not be tolerated.”

The settlement with Omnicare announced today, together with the prior settlements with Abbott and PharMerica, resolves allegations in two lawsuits filed in federal court in the Western District of Virginia by Richard Spetter and Meredith McCoyd, former Abbott employees.  The lawsuits were filed under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private individuals to sue on behalf of the government for false claims and to share in any recovery.  The act also allows the government to intervene and take over the action, as it did in part in this case in May 2014.  The United States filed a complaint-in-intervention against Omnicare in December 2014.  As part of today’s resolution, McCoyd will receive $3 million from the federal share of the settlement amount.

This settlement illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of Health and Human Services.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $31.6 billion through False Claims Act cases, with more than $19.2 billion of that amount recovered in cases involving fraud against federal health care programs.”

This matter was jointly handled by the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office for the Western District of Virginia, HHS-OIG, the Office of the Attorney General for the Commonwealth of Virginia and the National Association of Medicaid Fraud Control Units.

The cases are captioned United States ex rel. Spetter v. Abbott Labs., et al., Case No. 10-cv-00006 (W.D. Va.) and United States ex rel. McCoyd v. Abbott Labs., et al., Case No. 07-cv-00081 (W.D. Va.).  The claims resolved by the settlement are allegations only, and there has been no determination of liability.

Hospital Chain Will Pay over $513 Million for Defrauding the United States and Making Illegal Payments in Exchange for Patient Referrals; Two Subsidiaries Agree to Plead Guilty

A major U.S. hospital chain, Tenet Healthcare Corporation, and two of its Atlanta-area subsidiaries will pay over $513 million to resolve criminal charges and civil claims relating to a scheme to defraud the United States and to pay kickbacks in exchange for patient referrals.

Principal Deputy Assistant Attorney General David Bitkower of the Justice Department’s Criminal Division; U.S. Attorney John Horn of the Northern District of Georgia; Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division; U.S. Attorney G.F. Peterman III of the Middle District of Georgia; Georgia Attorney General Samuel S. Olens; Acting Special Agent in Charge George Crouch of the FBI’s Atlanta Field Office; and Special Agent in Charge Derrick L. Jackson of the U.S. Department of Health and Human Services-Office of Inspector General (HHS-OIG) in Atlanta made the announcement.

In addition, two Tenet subsidiaries, Atlanta Medical Center Inc. and North Fulton Medical Center Inc., have agreed to plead guilty to conspiracy to defraud the United States and to pay health care kickbacks and bribes in violation of the Anti-Kickback Statute (AKS).  The plea agreements remain subject to acceptance by the court.  Up until April 2016, Atlanta Medical Center Inc. and North Fulton Medical Center Inc. owned and operated acute-care hospitals located in the greater Atlanta metropolitan area.

Atlanta Medical Center Inc. and North Fulton Medical Center Inc. were charged in a criminal information filed today in federal court in Atlanta with conspiracy to defraud the United States by obstructing the lawful government functions of HHS and to violate the AKS, which, among other things, prohibits payments to induce the referral of patients for services paid for by federal health care programs.  The two Tenet subsidiaries have agreed to plead guilty to the charges alleged in the criminal information and will forfeit over $145 million to the United States – which represents the amount paid to Atlanta Medical Center Inc. and North Fulton Medical Center Inc. by the Medicare and Georgia Medicaid programs for services provided to patients referred as part of the scheme.

Tenet HealthSystem Medical Inc. and its subsidiaries (collectively THSM) entered into a non-prosecution agreement (NPA) with the Criminal Division’s Fraud Section and the U.S. Attorney’s Office of the Northern District of Georgia related to the charges in the criminal information.  THSM is the parent company of Atlanta Medical Center Inc., North Fulton Medical Center Inc., Spalding Regional Medical Center Inc. and Hilton Head Hospital, and employed their executives.  THSM is a subsidiary of Tenet Healthcare Corporation.  Under the terms of the NPA, THSM and Tenet will avoid prosecution if they, among other requirements, cooperate with the government’s ongoing investigation and enhance their compliance and ethics program and internal controls.  Tenet has also agreed to retain an independent compliance monitor to address and reduce the risk of any recurrence of violations of the AKS by any entity owned in whole, or in part, by Tenet.  The term of THSM’s and Tenet’s obligations under the NPA is three years, but the NPA may be extended for up to one year.

In the civil settlement, Tenet agreed to pay $368 million to the federal government, the state of Georgia and the state of South Carolina to resolve claims asserted in United States ex rel. Williams v. Health Mgmt. Assocs., Tenet Healthcare, et al.,a lawsuit filed by Ralph D. Williams, a Georgia resident, in the Middle District of Georgia, under the federal and Georgia False Claims Acts.  The acts permit whistleblowers to file suit for false claims against the government entities and to share in any recovery.  The federal share of the civil settlement is $244,227,535.30, the state of Georgia will recover $122,880,339.70 and the state of South Carolina will recover $892,125.  Mr. Williams’ share of the combined civil settlement amount is approximately $84.43 million.

“When pregnant women seek medical advice, they deserve to receive care untainted by bribes and illegal kickbacks,” said Principal Deputy Assistant Attorney General Bitkower.  “The Tenet case is the first brought through the assistance of the Criminal Division’s corporate health care fraud strike force.  This is one of more than a dozen active corporate investigations by the strike force, and we are committed to following evidence of health care fraud wherever it leads – whether it be individual physicians, pharmacy owners or corporate boardrooms.”

“Our Medicaid system is premised on a patient’s ability to make an informed choice about where to seek care without undue interference from those seeking to make a profit,” said U.S. Attorney Horn.  “Tenet cheated the Medicaid system by paying bribes and kickbacks to a pre-natal clinic to unlawfully refer over 20,000 Medicaid patients to the hospitals.  In so doing, they exploited some of the most vulnerable members of our community and took advantage of a payment system designed to ensure that underprivileged patients have choices in receiving care.”

“The Department of Justice continues to devote enormous resources to exposing and pursuing alleged misconduct of improper financial relationships between hospitals and referral sources,” said Principal Deputy Assistant Attorney General Mizer.  “Such relationships exploit vulnerable populations and threaten to drive up the cost of healthcare for everyone.  In addition to yielding a substantial recovery for taxpayers, this settlement reflects the department’s lack of tolerance for these types of abusive arrangements, and the negative effects they can have on our health care system.”

“The global resolution of this complex and sophisticated fraud scheme exemplifies what can be accomplished through the cooperation of federal and state investigative and prosecutorial authorities,” said U.S. Attorney Peterman.  “I am particularly proud of the civil attorneys in the U.S. Attorney’s Office for the Middle District of Georgia, working hand in hand with investigators of the U.S. Department of Health and Human Services and attorneys in the Civil Division and the Medicaid Fraud Control Unit of the Office of the Attorney General of Georgia, whose combined efforts greatly contributed to this outstanding result on behalf of the American taxpayers.”

“Tenet took advantage of vulnerable pregnant women in clear violation of the law by paying kickbacks in order to bring their referrals to Tenet hospitals,” said Georgia Attorney General Olens.  “Through this scheme, Tenet defrauded the Georgia Medicaid program, and reaped hundreds of millions of dollars.  This is an unprecedented settlement for the state of Georgia, and reflects my office’s commitment to protecting Georgia taxpayers by uncovering Medicaid fraud and abuse.”

“The FBI continues to play a significant role in ensuring that federal laws related to the healthcare industry, to include the federally funded Medicare and Medicaid programs, are enforced,” said Acting Special Agent in Charge Crouch.  “The settlement agreements announced today involving Tenet Healthcare Corporation, as well as related guilty pleas by two of its Atlanta-based hospitals, Atlanta Medical Center Inc., and North Fulton Medical Center Inc., are a clear example of those efforts.  In addition, the FBI’s Major Provider Response Team (MPRT) assisted the Atlanta Field Office in the civil and criminal investigation of Tenet.  The MPRT was created in 2011 in response to numerous healthcare related corporate-level schemes resulting in billions in losses to healthcare plans.  The FBI, along with its MPRT, will continue to aggressively address the threat of large-scale corporate healthcare schemes significantly impacting both private and government healthcare benefit plans.”

“OIG continues to emphasize investigation of improper financial relationships between health care providers,” said Special Agent in Charge Jackson.  “Using their positions of trust, health providers – after receiving payments from Tenet – sent expectant women specifically to Tenet hospitals.  Patients were often directed to Tenet facilities miles and miles from their homes and on their journeys passed other hospitals that could have provided needed care.  These women were thereby placed at increased risk during one of the most vulnerable points in their lives.  HHS-OIG will continue to protect patients by exposing such illegal arrangements.”

As alleged in the criminal information as well as civil complaints filed by the department and the state of Georgia in 2014 and 2013, Atlanta Medical Center Inc., North Fulton Medical Center Inc., Spalding Regional Medical Center Inc. and Hilton Head Hospital paid bribes and kickbacks to the owners and operators of prenatal care clinics serving primarily undocumented Hispanic women in return for the referral of those patients for labor and delivery medical services at Tenet hospitals.  These kickbacks and bribes allegedly helped Tenet obtain more than $145 million in Medicaid and Medicare funds based on the resulting patient referrals.

According to the criminal information, as part of the scheme, expectant mothers were in some cases told at the prenatal care clinics that Medicaid would cover the costs associated with their childbirth and the care of their newborn only if they delivered at one of the Tenet hospitals, and in other cases were simply told that they were required to deliver at one of the Tenet hospitals, leaving them with the false belief that they could not select the hospital of their choice.  The criminal information alleges that as a result of these false and misleading statements and representations, many expectant mothers traveled long distances from their homes to deliver at the Tenet hospitals, placing their health and safety, and that of their newborn babies, at risk.

The criminal information also charges Atlanta Medical Center Inc. and North Fulton Medical Center Inc. with conspiring to defraud HHS in its administration and oversight of the Medicare and Medicaid Programs, including HHS-OIG’s enforcement of Tenet’s September 2006 corporate integrity agreement (the CIA).  The criminal information and the civil complaint allege that many of the unlawful payments happened while Tenet was under the CIA.  The criminal information further alleges that certain executives of Atlanta Medical Center Inc., North Fulton Medical Center Inc. and others concealed these unlawful payments from HHS-OIG during the pendency of the CIA by, among other things, falsely certifying compliance with the requirements of the CIA and failing to disclose reportable events relating to the unlawful relationship under the CIA.

Branch Banking & Trust Company Agrees to Pay $83 Million to Resolve Alleged False Claims Act Liability Arising from FHA-Insured Mortgage Lending

The Department of Justice announced last week that Branch Banking & Trust Company (BB&T) has agreed to pay the United States $83 million to resolve allegations that it violated the False Claims Act by knowingly originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) that did not meet applicable requirements.  BB&T is headquartered in Winston-Salem, North Carolina.

“The FHA program depends on Direct Endorsement Lenders endorsing only eligible loans for FHA mortgage insurance, and complying with HUD’s quality control requirements,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “Lenders like BB&T that participate in the FHA program must make adherence to the FHA program rules a priority.  The Department has and will continue to hold accountable those lenders that prioritize profits over program compliance.”

“While profiting from the FHA program, BB&T exposed the taxpayers to losses by failing to comply with HUD guidelines, and then took the additional step of falsely certifying that it had complied with such guidelines,” said U.S. Attorney John Horn of the Northern District of Georgia. “This settlement recovers substantial losses caused by BB&T’s decision to place its own profits above its commitment to adhere to HUD underwriting and quality control requirements.”

Since at least January 2006, BB&T has participated as a Direct Endorsement lender (DEL) in the FHA insurance program.  A DEL has the authority to originate, underwrite, and endorse mortgages for FHA insurance.  If a DEL approves a mortgage loan for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to HUD, FHA’s parent agency, for the losses resulting from the defaulted loan.  Under the DEL program, the FHA does not review a loan before it is endorsed for FHA insurance for compliance with FHA’s credit and eligibility standards, but instead relies on the efforts of the DEL to verify compliance.  DELs are therefore required to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance.

The settlement announced today resolves allegations that BB&T failed to comply with certain FHA origination, underwriting and quality control requirements.  As part of the settlement, BB&T admitted to the following facts: Between Jan. 1, 2006 and Sept. 30, 2014, it certified for FHA insurance mortgage loans that did not meet HUD underwriting requirements and did not adhere to FHA’s quality control requirements.  BB&T significantly increased its loan volume between 2006 and 2009—more than doubling all loan originations, while increasing the number of FHA insured loans six fold.  This increase in volume was accompanied by an increase in the number of loans internally rated “Serious-Marketability” by BB&T’s quality control department —the most significant quality control defect rating and a defect that rendered a loan ineligible for FHA insurance.  Between 2007 and 2011, the percentage of loans underwritten by BB&T each year that were rated Serious-Marketability by its quality control department always exceeded 30 percent, and exceeded as much as 50 percent in 2010 and 2011.  BB&T nevertheless endorsed many of these loans for FHA insurance and, if they defaulted, sought payment from HUD for the insured loans.

The monthly reviews and reports that BB&T’s quality control department shared with management alerted BB&T to deficiencies in many of its FHA loans.  A 2010 internal memorandum at BB&T stated that “increased volume of FHA requests and changes to regulatory requirements have resulted in origination, processing and underwriting errors.  Some employees are not applying current and accurate FHA guidelines.”  A proposal to improve BB&T’s underwriting of FHA loans with additional training as well as a testing and certification process for underwriters was prepared in 2010, but neither recommendation was implemented until after 2014.

Additionally, between 2006 and 2014, BB&T’s quality control process did not satisfy certain FHA requirements.  Although loan volume more than doubled from 2006 to 2009, the number of quality control employees remained the same.  The quality control department requested additional employees in 2009, yet new employees were not added until 2013.  Because BB&T’s quality control department did not have adequate staff, it instituted a cap on the number of loans it reviewed.  As a result, between 2009 and 2014, the quality control department did not always review the number of loans necessary to comply with HUD’s loan review sampling requirements.  Additionally, BB&T did not perform reviews of its lender branch offices, as required by HUD, before beginning the reviews again in late 2014.

Finally, since at least 2006, HUD has required self-reporting.  However, despite internal ratings showing that 30 percent or more of the loans underwritten by BB&T between 2007 and 2011 had Serious-Marketability findings, and were thus ineligible for FHA insurance, BB&T did not self-report any loans containing material underwriting defects until 2013.

As a result of BB&T’s conduct and omissions, HUD insured loans endorsed by BB&T that were not eligible for FHA mortgage insurance under the DEL program, and that HUD would not otherwise have insured.  HUD subsequently incurred substantial losses when it paid insurance claims on those loans.

“Lenders are required to apply FHA’s standards to each mortgage loan we insure and to honestly certify to us that they’ve done so,” said Associate General Counsel Dane M. Narode for HUD’s Program Enforcement.  “Today’s settlement reminds all lenders that sound underwriting is the bedrock of a healthy housing market and the financial futures of homeowners we support.”

“Today’s settlement agreement resolves allegations that BB&T, entrusted by American taxpayers to comply with FHA regulations, failed to conform with certain FHA origination, underwriting and quality control requirements,” said Inspector General David A. Montoya for HUD.  “This settlement demonstrates a continued commitment to address the failures and halt the business practices that potentially harm the FHA program and its participants.”

The settlement was the result of a joint investigation conducted by HUD, the HUD Office of Inspector General, the Civil Division’s Commercial Litigation Branch and the U.S. Attorney’s Office for the Northern District of Georgia.  The claims asserted against BB&T are allegations only, and there has been no determination of liability.

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