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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.

				

			

			
						
					
			

	
		
		

			

				
				
January 13, 2017

				 Nearly 4,500 students victimized by the now-defunct American Career Institute (ACI) in Massachusetts will have their federal student loans forgiven by the U.S. Department of Education, Massachusetts announced. The announcement marks the first time the Department has granted a state attorney general鈥檚 application to cancel loans for a group of defrauded students. According to the Department, students who attended any of ACI鈥檚 five career training schools in Massachusetts 鈥� Braintree, Cambridge, Framingham, Springfield, and Woburn 鈥� will have their loans discharged based on deceptive and illegal practices uncovered by the AG鈥檚 investigation into the former for-profit school. In addition to federal loan discharges, former ACI students will also be entitled to refunds of any payments made on their federal loans.  The combined borrower loan discharges for ACI students announced will total roughly $30 million. 				 					 

						
Tagged in:
													  Education Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 12, 2017

				 Texas announced a settlement with MB2 Dental Solutions (MB2) and 21 affiliated pediatric dental practices. MB2 agreed to pay the United States and the State of Texas $8.45 million for alleged violations of the federal False Claims Act (FCA) and the Texas Medicaid Fraud Prevention Act (TMFPA). Three lawsuits were resolved with this settlement alleging that MB2 knowingly submitted claims for children鈥檚 dental services which were either not performed or were provided after false identification was used. The claims also involved illegal kickbacks to Medicaid beneficiaries and their families, marketers and marketing entities. The allegations were brought to the attention of the U.S. and Texas authorities by whistleblowers who filed one lawsuit under the FCA and two under the TMFPA. 				 					 

						
Tagged in:
													  Anti-Kickback and Stark, 
													  FCA State, 
													  Lack of Medical Necessity, 
													  Medicaid, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 12, 2017

				 Florida announced coordinated settlements with the operators of an online lending scheme. The operators of the alleged scheme are Western Sky Financial, LLC, CashCall, Inc., WS Funding, LLC, Delbert Services Corporation and John Paul Reddam, who is President, CEO, owner and director of CashCall. These settlements, in coordination with a pending Florida class action settlement against CashCall and Reddam filed in the U.S District Court for the Southern District of Florida, resolve allegations that the lender offered, serviced and collected on Western Sky loans to Florida borrowers with illegal interest rates of more than 18 percent. Subject to final court order in the class action, the settlements collectively provide more than $27 million in monetary relief to Floridians. Under the settlements, approximately 14,000 borrowers are expected to be eligible for a cash payment from a combined fund of more than $11 million. To be entitled to share in the fund, borrowers must have taken out a loan from these lenders and paid back more than principal plus 18 percent interest. FL				 					 

						
Tagged in:
													  Financial and Investment Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 12, 2017

				 New York announced the indictment and arraignment of attorney Anthony Cornachio, 74, of Garden City as well as the indictment and arraignment of NRI Group, LLC. (鈥淣RI鈥�) and Canarsie A.W.A.R.E., Inc. (鈥淐anarsie鈥�), both Medicaid-enrolled drug treatment programs companies controlled by Cornachio. Also announced was the indictment and arraignment of three-quarter housing operators Yury Baumblit, 66, and Rimma Baumblit, 60, of Brooklyn, and their company Back on Track Group, Inc. In papers unsealed in New York State Supreme Court, Kings County, prosecutors allege that Yury Baumblit and Rimma Baumblit, in exchange for payments from Cornachio鈥檚 companies, forced residents of their three-quarter homes to attend treatment at NRI and Canarsie regardless of the residents鈥� actual need for drug treatment services or face eviction. All of the residences leased by Back on Track Group, Inc. and operated by Yury Baumblit and Rimma Baumblit as three-quarter homes were located in Kings County. During the course of this scheme, which dates back to at least 2013, Cornachio allegedly paid Back on Track Group, Inc. over $900,000.00 in illegal kickbacks.  As a result of this kickback scheme, prosecutors allege that Cornachio, through NRI and Canarsie, submitted, and caused to be submitted, at least $1.7 million in false claims for reimbursement to Medicaid. These claims, prosecutors allege, were fraudulent because they resulted from illegal kickbacks and were often medically unnecessary. 				 					 

						
Tagged in:
													  Anti-Kickback and Stark, 
													  Healthcare Fraud, 
													  Medicaid, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 12, 2017

				 New York announced the resolution of a four-year investigation of Citigroup Global Markets, Inc. (CGMI), a subsidiary of Citigroup, that revealed that CGMI had overcharged over 47,000 of its customers more than $22.5 million in fees.  After the Attorney General鈥檚 Office launched its investigation, CGMI revised its policies and procedures to address the fee overcharge issues uncovered in the investigation, and as a part of the agreement CGMI admits the findings of Attorney General Schneiderman鈥檚 investigation. In cooperation with the Attorney General鈥檚 investigation, in October 2014 CGMI began reimbursing its customers in full with interest, for the overcharged fees.  The agreement also requires CGMI to report fee overcharge issues to the New York Attorney General鈥檚 office for the next three years and to pay a penalty of $1 million to the State of New York. The fee overcharges at issue in the investigation arose (1) when CGMI overcharged some of its customers more than the fees they had negotiated on their managed investment accounts, and (2) when CGMI overcharged customers by failing to rebate certain customers鈥� accounts after periods of inactivity when fees should not have been charged but were charged.  				 					 

						
Tagged in:
													  Financial and Investment Fraud, 
													  Financial Institution Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 10, 2017

				 New York announced the convictions of Lawrence D. Rosenbaum, 65, of Albany, New York, and his wife, Thomasine Henderson, 66. On January 5, 2017, Rosenbaum pleaded guilty to Grand Larceny, Securities Fraud and Tax Fraud for fraudulently soliciting hundreds of thousands of dollars from investors for kosher and halal cheese factories in upstate New York and bio-energy companies in New York State and Costa Rica. As part of his plea, Rosenbaum agreed to execute nearly $1,000,000 in judgments in favor of his victims, and he will be sentenced to 3 to 9 years in state prison. Also on January 5, Henderson pleaded guilty to Insurance Fraud and Falsifying Business Records in connection with her submission of a false claim in an attempt to obtain payment on a life insurance policy after her son鈥檚 suicide last year. According to the prosecution, Rosenbaum is an insurance broker who owned and operated Rosenbaum Financial Services in Albany, New York 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. 				 					 

						
Tagged in:
													  Securities Fraud, 
													  Tax Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 9, 2017

				 New York announced that it has filed a lawsuit against dietary supplement maker Quincy Bioscience, LLC and related companies and executives, charging that they deceptively market the widely-sold supplement Prevagen by falsely claiming that the product improves memory, despite lacking reliable scientific evidence to support this claim. The lawsuit, filed in the U.S. District Court for the Southern District of New York, seeks a ban on further false claims about Prevagen, restitution for consumers, disgorgement of ill-gotten gains, and civil penalties for violations of state law. According to the complaint, Quincy Bioscience鈥檚 own research demonstrates the flawed science behind its claims that Prevagen can improve memory. Quincy Bioscience developed and marketed Prevagen on the theory that its active ingredient, apoaequorin, a dietary protein, enters the human brain to supplement proteins that are lost during the natural aging process. Yet Quincy Bioscience lacks any studies showing that this orally-administered protein can cross the human blood brain barrier, and in fact, Quincy鈥檚 own studies show that the protein is rapidly digested in the stomach and broken down into amino acids like any other dietary protein. 				 			
	
		
		
	


 			




	
		
		

			

				
				
January 4, 2017

				 New York announced the plea and conviction of Gary Mole, 52, an Australian citizen and the former CEO of Glacial Energy Holdings (鈥淕EH鈥�), stemming from the underreporting of over $18.5 million dollars in taxable income by Glacial Energy of New York (鈥淕ENY鈥�), a wholly owned subsidiary of GEH.  Mole pleaded guilty to Criminal Tax Fraud in the Second Degree, a class C felony. According to prosecutors, from 2006 through 2008, Mole was the CEO and sole shareholder of GEH, an energy service company incorporated in Nevada. In approximately 2006, Mole allegedly began personally investing taxable revenue of GENY in a mining operation in the Democratic Republic of Congo (鈥淒RC鈥�), Generales Des Mines Au Congo SPRL, known as 鈥淕emico.鈥� Between January 1, 2006 and December 31, 2008 Mole diverted over $18.5 million in taxable revenue from GENY to Gemico. Mole instructed subordinates to wire money to bank accounts in the Democratic Republic of Congo, Switzerland, Lichtenstein, South Africa, and China, among others, all for the benefit of Gemico. 				 					 

						
Tagged in:
													  Tax Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
December 29, 2016

				 Tennessee Gas Pipeline LLC agreed to pay the Massachusetts $640,000 to settle a lawsuit brought by Tennessee Gas 鈥� a subsidiary of Kinder Morgan 鈥� against the state for an easement through Otis State Forest in Sandisfield to expand an existing natural gas pipeline. As part of the $640,000 settlement, Tennessee Gas will pay $300,000 for the Department of Conservation and Recreation (DCR) to identify and acquire additional conservation land in the vicinity that provides ecological functions equivalent to the land impacted by the pipeline. 				 					 

						
Tagged in:
													  Environmental Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
December 20, 2016

				 California announced an additional $66 million settlement with Volkswagen over the company鈥檚 use of 鈥渄efeat device鈥� software to bypass emissions controls in its Volkswagen, Audi and Porsche 3.0-liter diesel vehicles, in violation of California鈥檚 environmental laws.  The settlement, in which California will receive $66 million to mitigate environmental harm, including $25 million to provide incentives for the purchase of zero emission vehicles, is part of a $225 million nationwide agreement, which the California Attorney General鈥檚 office negotiated alongside the California Air Resources Board, the U.S. Department of Justice, and the U.S. Environmental Protection Agency.  This is the third partial settlement following a landmark $14.7 billion agreement with Volkswagen over defeat devices in its 2.0-liter diesel vehicles (of which $1.18 billion will flow to California) and a settlement California obtained from Volkswagen for $86 million in civil penalties. 				 					 

						
Tagged in:
													  Environmental Fraud, 
												
						

					
	
							
	
		
		
	


 			


											

						

								

									
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