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State Enforcement Actions

					
Each state enforces its laws and defends its interests, and states often work with the federal government in investigating and prosecuting corporate frauds. 聽Whistleblowers with knowledge of fraud or wrongful conduct that involves state or local funds or programs may be able to bring a claim under a state or local False Claims Act, and may be eligible to receive a monetary reward and protection against retaliation.


Below are summaries of recent settlements, successful prosecutions, and enforcement actions by states.聽If you believe you have information about fraud which could give rise to a claim under a State or Local False Claims Act or other whistleblower reward provision, please contact us to speak with one of our experienced whistleblower attorneys.

				

			

			
						
					
			

	
		
		

			

				
				
March 23, 2017

				 New Jersey announced that the manager of a now-defunct Bergen County used car dealership was sentenced to 10 years in prison for his role as 鈥減oint man鈥� in a bank financing scam that netted $1.4 million in fraudulent loans for luxury cars. Hector Marquez, the general manager of D.I.B Leasing in Teterboro, was also ordered to pay $110,370 in restitution under the sentence handed down yesterday by Superior Court Judge Susan Steele in Bergen County. Marquez, 44, of Monroe, pleaded guilty in July to first-degree money laundering and second-degree misconduct by a corporate official in the dealership case. He also pleaded guilty to second-degree insurance fraud in a separate indictment involving a $139,000 Bentley purchased at his dealership and later torched and reported stolen to an insurance company. He was sentenced to 10 years in prison for that case and will serve both sentences concurrently. Last week, the dealership鈥檚 finance manager, Paul Russo, 52, of Scotch Plains, was sentenced to six years in prison and ordered to pay $150,267 in restitution by Superior Court Judge Steele. In July 2015, Russo pleaded guilty to second-degree money laundering and second-degree misconduct by a corporate official in the dealership case. 				 					 

						
Tagged in:
													  Financial Institution Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
March 22, 2017

				 New York announced the indictment of Steve Chon, Daniel Chon, Victor Chon, Stephanie Chon and Spa Castle Inc. on eleven felony charges each, stemming from their alleged theft or failure to remit over $1.5 million in sales and other taxes owed by Spa Castle Inc. Steve Chon (57), his brothers Daniel Chon (54) and Victor Chon (50), and his daughter Stephanie Chon (29), own and operate Spa Castle Inc., a 100,000-square foot spa facility located at 131-10 11th Avenue in College Point, Queens.  According to the charges, the Chon family failed to report millions of dollars in revenues collected by Spa Castle, Inc. from 2010 through 2013, thereby failing to remit to New York State a total of over $621,000 in sales taxes, $207,000 in withholding taxes, $610,000 in corporate taxes, and $131,000 in Metropolitan Transportation Authority Surcharge taxes. 				 					 

						
Tagged in:
													  Tax Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
March 17, 2017

				 Two individuals have been ordered to pay $13.5 million for the deceptive marketing of medications and services relating to the treatment of erectile dysfunction at an unlicensed medical clinic in Framingham, Attorney General Maura Healey announced. The judgment also orders preventive measures to ensure future compliance with the law. Pursuant to the Suffolk Superior Court judgment, Kevin Hornsby, M.D., was ordered to pay $11 million in civil penalties and his wife, Heidi Hornsby, was ordered to pay $2.5 million. According to the AG鈥檚 complaint, Florida Men鈥檚 Medical Clinic, LLC (FMMC), Men鈥檚 Medical Clinic, LLC (MMC), Kevin Hornsby, MD and Heidi Hornsby, were responsible for the deceptive marketing of medications and services relating to the treatment of erectile dysfunction at an unlicensed medical clinic in Framingham that went by the names Massachusetts Men鈥檚 Medical Clinic, Massachusetts Men鈥檚 Medical and Men鈥檚 Medical Clinic. The defendants used various deceptive practices in widespread TV, print and radio advertising to market the erectile dysfunction services and treatments sold at their Framingham facility. According to the complaint links to PDF file, more than 4,000 consumers went to the unlicensed facility for care. 				 					 

						
Tagged in:
													  Improper Medical Facility, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
March 16, 2017

				 New York announced that Lawrence D. Rosenbaum, 65, of Albany, was sentenced on multiple crimes in connection with a sweeping indictment charging him with fraudulently soliciting over $1 million from numerous investors in a securities fraud scheme between 2006 and 2012. Rosenbaum is an insurance broker who owned and operated Rosenbaum Financial Services in Albany for decades. In approximately 2001, Rosenbaum formed a limited liability company, Saratoga Cheese Company LLC, which he claimed would develop a halal and kosher cheese plant in the Capital Region, using local dairy products and a cheese coagulator that he had learned about when he was an exchange student in Germany decades earlier.  In 2006, Rosenbaum reformed this entity as Saratoga Cheese Corporation, with the stated purpose of developing a cheese manufacturing facility in Cayuga County. Also according to prosecutors, between April 2006 and October 2012, Rosenbaum solicited over $1 million in private investments in Saratoga Cheese Corporation and its related entities by promising investors substantial returns and shares of stock in his corporations.   Rosenbaum then used his various corporate entities as personal bank accounts, diverting over $600,000 to himself by writing checks payable to himself, transferring funds to other accounts, and making numerous cash withdrawals, including withdrawals in both the Albany area and in Costa Rica. 				 					 

						
Tagged in:
													  Financial and Investment Fraud, 
													  Securities Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
March 14, 2017

				 The Contra Costa Superior Court ordered a payment of $3 million in civil penalties in the case People v. Golden Gate Petroleum, et al. The penalties are to be paid by the defendants, the owners and operators of underground storage tank systems at retail gasoline stations in several counties in Northern California: Golden Gate Petroleum, Bay Area/Diablo Petroleum Company, Dennis O鈥橩eefe, and Westgate Petroleum Company, Inc. The defendants had been sued in 2007 for violations of environmental protection laws at their retail service stations. Those violations included failing to comply with requirements related to monitoring, inspection, and maintenance of underground storage tanks and underground storage tank systems; tampering with or disabling leak detection devices; and improperly handling hazardous wastes and hazardous substances. The action was settled in 2011, and the Defendants were ordered to pay $3 million in penalties and costs and to comply with specific environmental protection requirements.  The Contra Costa Superior Court suspended an additional $3 million in penalties if the Defendants complied with those requirements.  The Defendants did not comply. 				 					 

						
Tagged in:
													  Environmental Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
March 10, 2017

				 A Lowell reusable bag factory has agreed to pay nearly $1.2 million to resolve numerous alleged wage and hour law violations and for retaliating against employees, Massachusetts announced. As a result, more than 550 affected workers will receive restitution, some of it in double damages. The company, known as UnWrapped Inc., primarily sells reusable grocery bags to chain supermarkets and many of its workers are paid by staffing agencies. The AG鈥檚 Office alleges that the employer used staffing agencies in an attempt to shield itself from liability, asserting that it did not employ the workers. In a settlement agreement with the AG鈥檚 Office, Unwrapped, Inc. and its president Steven Katz, Esq. have agreed to pay $293,170 for alleged violations of state laws including failure to pay minimum wage, failure to provide earned sick time, and retaliation against two workers who cooperated with the investigation. 				 			
	
		
		
	


 			




	
		
		

			

				
				
May 8, 2017

				 Washington filed a campaign finance lawsuit in Thurston County Superior Court against former Grant County Superior Court judge Jerry Moberg and Moses Lake business owner Ken Greene. If successful, Moberg and Greene could face a total of $453,852.60 in penalties, plus costs and fees. The lawsuit alleges Moberg and Greene intentionally concealed the fact they were behind a political mailer attacking a candidate in the 2014 Grant County Prosecutor election. The state Public Disclosure Commission investigation report also outlines 鈥渨hat appear to be incomplete, deceptive, or untrue answers to staff鈥檚 questions鈥� by Greene and Moberg. 				 			
	
		
		
	


 			




	
		
		

			

				
				
March 3, 2017

				 New Jersey announced that eight people were indicted on first-degree charges of conspiracy, racketeering and money laundering for allegedly defrauding 26 investors of more than $7 million through two successive scams involving sales of bogus investments. After the first scam, two defendants 鈥� George Bussanich Sr. and George Bussanich Jr. 鈥� agreed to pay $5.5 million, including $4 million in investor restitution, to settle a suit filed by the New Jersey Bureau of Securities, but they then allegedly proceeded to defraud 15 of the same investors in a second scam. It is alleged that, as in the first scheme, the defendants never actually invested the funds from the investors as promised. The investors received monthly 鈥渞eturns,鈥� paid out of the original principal investment, which gave them the impression that the investments were legitimate and were profiting. The defendants would simply move money from one account to another and then disburse a fraction of the funds back to the investors as a 鈥渞eturn.鈥� 				 					 

						
Tagged in:
													  Financial and Investment Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
March 2, 2017

				 New York announced the sentencing of two pharmacy owners, a supervising pharmacist and ten corporations for defrauding several government-funded healthcare programs, including Medicaid and Medicare. An investigation revealed that on at least eight separate occasions between November 2013 and February 2014, the defendants paid patients hundreds of dollars in cash to forgo their prescription medications, the vast majority of which were to treat HIV. The defendants then submitted false claims to Medicare, Medicaid and Medicaid-managed care organizations and were reimbursed for distributing the medications, despite the fact that they were never dispensed to patients. Tarek Elsayed, 50, of Elmhurst Queens, the co-owner of 184th Street Pharmacy in the Bronx, was sentenced in Bronx County Supreme Court by the Honorable Stephen Barrett to one to three years in state prison. Previously, in August of 2016, Ahmed Hamed, 39, of Elmhurst Queens, the second co-owner of 184th Street Pharmacy, was sentenced to two to six years in state prison. In October of 2016, Mohamed Hassan Ahmed, 38, of Bayside, the supervising pharmacist at 184th Street Pharmacy, was sentenced to one to three years in state prison and was required to surrender his license to practice pharmacy. Collectively, the three defendants stole over $10 million from government-funded health care programs. In addition, the Attorney General鈥檚 Medicaid Fraud Control Unit (MFCU) reached a $4.1 million civil settlement agreement with defendant Elsayed and a $3.8 million civil settlement agreement with defendant Hamed. 				 					 

						
Tagged in:
													  FCA State, 
													  Medicaid, 
													  Medical Billing Fraud, 
													  Medicare, 
													  Pharma Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
March 1, 2017

				 The Grocery Manufacturers Association was ordered to pay nearly $1.1 million in costs and fees stemming from the Washington Attorney General鈥檚 campaign finance lawsuit. GMA has previously been penalized $18 million for its intentional violations of Washington law, the largest campaign finance judgment in history. Judge Anne Hirsch ordered GMA to pay the state鈥檚 requested attorney fees, which she held to be 鈥渞easonable and appropriate,鈥� as well as litigation and investigation costs. The case arose from Ferguson鈥檚 investigation of the finances of opposition to voter Initiative 522, which would have required labeling of genetically modified organisms, or GMOs, in food sold to consumers. Ferguson filed the lawsuit against GMA in October 2013. In March 2016, Judge Hirsch granted the Attorney General鈥檚 Motion for Summary Judgment and ruled that GMA violated state campaign finance laws when it failed to register and report its political committee, which opposed I-522. GMA was identified as the largest contributor to the 鈥淣o on 522鈥� political committee in campaign disclosure filings. However, over 30 members of GMA actually financed the opposition campaign through a special, earmarked account but were not initially identified as individual donors. 				 			
	
		
		
	


 			


											

						

								

									
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