Posts in category: Blog

In an upside-down world where prosecutorial recommendations for Draconian “low end” Guidelines sentences have become acceptable outcomes in many districts, it was encouraging when the U.S. district court in Pensacola Florida granted a 54 month downward variance from a 78 month “low end” sentence request from the government. What was even more encouraging was that the court imposed that sentence after the client had exercised his Sixth Amendment right to trial by jury.

The client was an owner of a compounding pharmacy in Pensacola who had recently begun the pharmacy. A marketer with an impressive history in medical device sales and with established relationships with a cadre of highly regarded surgeons had approached the client about marketing the pharmacy’s specialty compounded medications to those surgeons. Evidence at trial revealed that, prior to ever meeting the client, the marketer had enlisted the physician assistant at one of the surgeon’s offices to forge the surgeon’s signature on prescriptions for compounded medications that were dispended by a separate pharmacy outside of Pensacola. Evidence at trial showed that marketer also paid the physician assistant kickbacks for forging those prescriptions and that the scheme continued at the client’s pharmacy. Nonetheless, the government presented no evidence that the client had any knowledge of the forged prescriptions or that the client had any knowledge that the marketer was paying the physician assistant kickbacks. Instead, at trial the governments theory of the healthcare fraud was that our client, through his pharmacy, dispensed compounded medications even though he knew that the surgeon had not physically seen these patients, and therefore, any compounded medications ordered by that physician were derived from an “illegitimate doctor patient relationship” which constituted participation in the previously initiated health care fraud conspiracy. Unfortunately (although, respectfully), on this novel theory, the jury rendered verdicts of guilty.

Despite the verdict, at sentencing, the court varied downward significantly. Among other reasons, the court concluded that the client was not a participant in the forged prescriptions component of the scheme and that there was no evidence that the client (even as the owner of the pharmacy) recruited anyone else into the scheme. Further, the court emphasized that the pharmacy continued a legitimate business and dispensed thousands of valid prescriptions to patients during the period of the charged conspiracy and for several years, long after the conspiracy ended. And, the court found that the conduct for which the client was convicted constituted aberrant conduct committed by an otherwise law-abiding citizen. After hearing testimony from the CPA for the pharmacy and its related entities, the court also noted that the client’s personal gain from the convicted conduct paled in comparison to the enormous loss amount that the PSI had attributed to the client at sentencing. Finally, the court found that the client’s character, history of good deeds, generosity, and civic contributions supported a variance.

There are at least two significant takeaways from the result in this case. First, notwithstanding the guilty verdict, this is the rare case where the client (in our view) would have potentially received a much higher sentence had he not proceeded to trial and had simply pled guilty. The trial and the sentencing were opportunities to vigorously represent the client, to expose the weaknesses in the government’s theory of the case, and to place each of the relevant facts (not just what the PSI says at a stipulated hearing) before the jury and the judge. Second, where applicable, in fraud cases, it is incumbent upon attorneys to underscore the substantial discrepancies between the loss amount and a client’s gain. To do so, attorneys should seriously consider introducing a CPA or other financial professional familiar with the client’s books and records.

The client was represented at trial by the Firm and all-star Pensacola attorney John Beroset. This was the second time in less than 6 months that the Firm and John Beroset achieved what we believe were favorable results for our clients.

The Firm, in coordination with attorney John Beroset, recently obtained an official declination of prosecution in an investigation into government contractor fraud related to contracts with the Air Force.

The government contract fraud investigation was focused on, more broadly, rooting out fraud perpetrated by contractors conducting business with the Air Force. In this instance, the client’s contract contemplated the performance of services, with the assistance of a very capable sub-contractor at the Air Force base following the devastation caused by Hurricane Michael in the Panhandle.

After the contract was performed and completed, the client was approached by law enforcement twice in connection with the government contractor fraud investigation, including by special agents from the Air Force and the Small Business Administration (SBA). And, when they did, the client agreed to submit to lengthy interviews — without an attorney — with the federal agents related to the government contractor fraud investigation.

At a certain point, a felony charge seemed unavoidable.

Nonetheless, after the client retained the Firm and Mr. Beroset, and after coordinating with counsel for the sub-contractor and submitting our version of the events including the salient facts and the relevant legal authorities to the prosecutor, the government took the unusual (sadly) and eminently reasonable step of deciding not to move forward with any recommendation for criminal prosecution.

The Firm regularly represents corporate executives, health care professionals, contractors, and businesses ensnared in fraud investigations.

Recently, the Feldman Firm’s Peru bribery case was mentioned in the  Global Investigations Review article GIR – Tensions rise over hiatus in case linked to Odebrecht investigation . The article focuses on the Firm’s representation of certain Peruvian nationals in a forfeiture action related to the global Odebrecht investigation. The complaint in that case, which is premised on foreign bribery violations, can be found here.

As detailed in the article, Mr. Feldman’s clients have been the subject of a seizure warrant, and now a civil forfeiture action, since 2017. Their assets were seized in 2017 in the Middle District of Florida. Almost two years later, in early 2019, the Government then filed a civil forfeiture complaint in the Eastern District of New York where the Odebrecht case was filed. Within weeks, the Firm filed several pre-trial motions. The Government then moved to stay the entire proceeding based on a related criminal investigation. The stay has been in effect since March of 2019. A year later, the Firm moved to lift the stay. The article summarizes the recent litigation surrounding the Firm’s efforts to lift the stay of the forfeiture action.

The Firm has substantial experience in forfeiture actions and the Firm has experience representing foreign nationals, especially foreign nationals in Brazil and Peru, in matters related to foreign or domestic bribery. Many of these investigations focus on the flow of funds between or through transnational accounts. The Firm has also witnessed an uptick in the use of forfeiture –instead of criminal prosecution — to seize assets in connection with foreign bribery investigations.

In the Firm’s view. the procedural protections related to forfeiture, especially civil forfeiture, should be reconsidered by the U.S. Supreme Court. The Firm looks forward to continuing to vigorously represent persons whose assets are seized by the government whether it be cash, a bank account, a brokerage account, or other assets, such as stocks or bonds.

The college bribery prosecution which has made splashy headlines now for several years and  the college bribery prosecution likely has caused more than a few uncomfortable moments between relatives or friends when asked “do you think they should be prosecuted” has just thrown us a 12 to 6 curve ball.

Recently, the defense filed motions to dismiss the indictment in the college bribery prosecution for government misconduct. More specifically, the motion alleges that, based on notes taken by Singer contemporaneous with meetings with the FBI and prosecutors, the FBI handlers of the lead informant, Singer, coerced or pressured Singer into lying on phone calls with the defendants about the nature of the payments (for example, were the payments going to be made to the college or to the coach himself). The defendants’ understanding of the nature of those payments, to whom they were made, and the intended purpose of the payments, are at the core of the prosecution’s college bribery and wire fraud allegations. In a very recent Order from Judge Horton, the judge took these allegations in Singer’s notes very seriously and entered an order requiring the government to file a response to what he considered “very disturbing.

The allegations of misconduct in the college bribery prosecution, if true, are significant for several reasons.

First, if Singer told the FBI and the prosecutors that Singer advised his clients to make donations to the program, and not to him personally, then there was no conduct which could be considered bribery prior to the use of Singer as an informant. Such conversations and any notes from proffers with the Government that included this information – that Singer had told the FBI that his clients’ understanding was that the payments were donations to collegiate programs — should have been disclosed to the defense as part of their obligations under Brady at the commencement of the case, not years later.

There is an interesting legal issue here that was not fully briefed because Singer’s attorney voluntarily produced his notes. If Singer had taken the notes which were included in the defense motion at the direction and on the advice of counsel, then the notes at a minimum deserve work product and attorney client privilege protection. Nonetheless, if those same noted – as appears to be the case –have the potential to exonerate, exculpate, or significantly undermine part of the government’s case then those notes should be considered Brady information and presumably, in this author’s view, the constitutional status of Brady should trump the attorney client protections guarding the sanctity of Singers’ notes.

Second, if Singer had initially told his clients one thing – the payments are donations to the program – but then, only after government intervention and script writing, had attempted to engage his clients in illegal conduct, then there is an open question as to whether this constitutes entrapment and whether the defense has a bona-fide entrapment defense because, under this scenario, the client is not predisposed to committing any illegal activity. To the contrary, the client has in their mind only engaged in legal activities. How many calls did Singer make to a specific client requesting that he or she engage in illegal conduct, what their response was, etc. How much pressure did the Government apply via Singer?

Third, assume the misconduct motion and the entrapment defense are out- the judge isn’t dismissing this case and he isn’t giving an entrapment instruction to the jury – well how about Singer? How can the Government put on their case and prove it beyond a reasonable doubt with the cross-examination material that the defense will now wield against Singer? Will they even call Singer? Singer made “controlled calls” to the defendants which means at least 1 agent was contemporaneously listening to and recording the calls with the defendant. In this scenario, the government could call the agent to testify as to a specific conversation and the government could introduce the transcripts of Singer through the agent. But, even if they tried that, any jury should immediately begin to question the credibility of this prosecution. Further, the defense could take advantage of Federal Rule of Evidence 806 since all of Singer’s statements (even if he is not there) are out of court statements that can be used. Indeed, under 806, Singer’s credibility may be attacked, and then supported, by any evidence that would be admissible for those purposes if Singer had testified as a witness. The court may admit evidence of the Singer’s inconsistent statement or conduct, regardless of when it occurred or whether Singer had an opportunity to explain or deny it.

Should be interesting to see how all of this develops. Stay tuned.   The Firm represents persons charged with or under investigation with federal crimes including federal bribery offenses. The Firm however has never represented anyone charged with federal bribery or wire fraud related to supposedly cheating on their SAT’s or paying a coach a fake donation to be admitted to a specific college. Nor does the Firm believe many, if any, cases like this not involving celebrities will surface before grand juries to consider and convert into indictments.

In anti-kickback prosecutions, the Government has increasingly sought to suppress the introduction of safe harbor defenses. One of the primary and often cited safe-harbor defense to the anti-kickback statute is the employee safe harbor defense, i.e., the defense that the client was a bona fide employee.

There are not one, but two provisions which permit a client to raise an employee safe harbor defense: (1) the employee safe harbor defense and (2) the statutory defense to the anti kickback statute for employees. See 42 C.F.R. Section 1001.952(i) (employee-employer safe harbor to the Anti-Kickback Statute; 42 U.S.C. Section 1320a-7b(b)(3) (the statutory exception to AKS).

Both provisions are set forth below:

The plain language of the AKS states that the AKS does not apply to:

Any amount paid by an employer to an employee (who has a bona fide relationship with such employer) for employment in the provision of covered items or service

See 42 U.S.C. Section 1320a-7b(b)(3). (emphasis ours).

The safe-harbor states that:

As used in section 1128B of the Act, “remuneration” does not include any amount paid by an employer to an employee, who has a bona fide employment relationship with the employer, for employment in the furnishing of any item or service for which payment may be made in whole or in part under Medicare, Medicaid or other Federal health care programs. For purposes of paragraph (i) of this section, the term employee has the same meaning as it does for purposes of 26 U.S.C. 3121(d)(2) (“That provision of the statute states: “any individual who, under the usual common law rules applicable in determining the employer–employee relationship, has the status of an employee.”). See 42 C.F.R. Section 1001.952(i). (emphasis ours).

In raising the employee safe harbor defense, a client retains the burden of proof, by a preponderance of the evidence, to show that the challenged payment was from an employer to an employee with whom there is a bona fide employment relationship. See State v. Harden, 938 So.2d 480, 488–89 (Fla. 2006).

In recent cases, the Government has not hesitated to file motions to strike this safe harbor defenses as a defense, to exclude it from jury instructions, and/or seek to conduct discovery in order to ferret out the factual basis for the defense.

There are some cases where the clients’ safe harbor defense is akin to that Fourth quarter Hail Mary in the big game. You might get it, but it is very unlikely. Perhaps that is the reason for the Government’s dogged insistence on eliminating these defenses. But, as we all know, not every case is the same. They are nuanced. Facts, even small but critical facts, are dissimilar. There is no one size fits all approach.

​Despite this, the Government (at least in our District) continues to employ aone-size-fits-all approach to the application of the employee safe-harbor by citing two cases: United States v. Luis, 966 F. Supp. 2d 1321, 1330-31 (S.D. Fla. 2013); United States v. Starks, 157 F.3d 833 (11th Cir.1998).

Sadly, prosecutors continue to rely on these two cases from the Eleventh Circuit which misinterpreted the scope and application of the employee-safe harbor.

In Starks, defense counsel did not request an employee safe harbor instruction at trial and there was no briefing or litigation at the trial court level regarding the application of the safe-harbor. The facts in Starks were unsettling too. Two employees of a drug treatment program were paid cash in a parking lot to recruit struggling addicts so that they received treatment at a particular facility. They provided no medical services and were not health care professionals. On appeal, the Eleventh Circuit considered a vagueness challenge to the employee safe-harbor provisions because defendants contended that the safe-harbor provision contained in § 1320a-7b was unconstitutionally vague. Starks., at 839. Rejecting this argument, the court found that, even if defendants believed they were bona fide employees, the safe-harbor was not vague, as applied, because defendants were not compensated for providing “covered items or services.” Id.

Luis applied this same rationale in a case involving a civil action under 18 U.S.C. Section 1345 which permits the government to obtain pre-trial restraining orders against assets which are derived directly or indirectly from the fruits of a federal health care offense which includes anti-kickback violations. The defense claimed that the government could not restrain assets because, as employees, they qualified for the employee safe-harbor to the AKS. Again though, the facts in Luis were atypical – payments were made directly to nurse/recruiters in return from bringing patients to receive home health covered by Medicare.

In quickly rejecting the safe-harbor defense, the trial judge relied heavily on Starks and found that:

For either safe-harbor provision to apply, the remuneration must have been made to the employee for furnishing or providing covered items or services or for items or services payable under Medicare.

This is evident from the text of the safe-harbor provisions, as well as the Eleventh Circuit’s decision in United States v. Starks, 157 F.3d 833 (11th Cir.1998). The text of the safe-harbor provision upon which Luis relies states that “remuneration”  does not include “any amount paid by an employer to an employee … in the furnishing of any item or service for which payment may be made in whole or in part under Medicare.” 42 C.F.R. § 1001.952 (emphasis added). Similarly, the safe harbor contained in § 1320a-7b states that it will apply to “any amount paid by an employer to an employee … for employment in the provision of covered items or services.” § 1320a-7b(b)(3)(B) (emphasis added). The emphasized language in both of these provisions makes clear that the safe-harbor provisions will only apply when payments made to an employee compensate the employee for furnishing or providing covered items or services or items or services payable by Medicare, not simply for referring patients.

Luis, at 1330-31.

The underlined language has been rejected by other courts discussed belowand, in this author’s view, is a fundamental misinterpretation of the scope of the employee safe harbor. Indeed, if this extraordinarily sweeping approach to the defense were applied to any sales and marketing professional in the United States, that sales and marketing professional would fail the safe-harbor test every time because sales and marketing professionals do not provide a covered service. They are sales professionals, not health care professionals. Thus, any W-2 employee in the U.S. marketing, for example, pharmaceuticals or durable medical equipment, or medical devices, or laboratory tests for cancer, would be subject to a criminal AKS prosecution with no recourse under the employee safe-harbor defense.

One example of a proper instruction was in United States v. Monty Grow, 16-cr-20893-FAM (S.D.Fla.) (Dkt 112 at 18). There, the district court included a juryinstruction on the employee safe-harbor to the AKS, for receipt of kickbacks, stating: “remuneration does not include any amount paid by an employer to an employee, who has a good faith bona fide employment relationship with the employer, for employment in the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program.” Dkt 112 at 18.

This instruction is supported by holdings from district courts and appellate courts. Each of those courts have underscored the breadth of the employee-employer safe harbor in prosecutions based on the AKS. See United States v. Aids Healthcare Found., Inc., 262 F. Supp. 3d 1353, 1362 (S.D. Fla. 2017), aff’d sub nom. Carrel v. AIDS Healthcare Found., Inc., 898 F.3d 1267 (11th Cir. 2018) (granting motion for summary judgment in False Claims Act prosecution predicated on AKS finding that defendants satisfied the employee safe harbor to the AKS). See  Harden, 938 So.2d at 480, 488–89 (Finding that “per head” compensation was protected by employee safe-harbor and noting that “[t]he employee safe harbor presumes a reduced potential for program abuse because of the greater degree of control that employers are presumed to exercise over their employees.”); United States ex rel v. Halifax Hospital Med. Center, 2013 U.S. Dist. Lexis 167882 (M.D.Fla. 2013) (granting motion for partial summary judgment in False Claims Act prosecution based on employee safe harbor to Anti-Kickback Statute); Hericks v. Lincare, Inc.,  2014 U.S. Dist. Lexis 39706 at *54, n.17 (E.D. Pa. 2014) (dismissing part of a False Claims Act action based on an AKS violation finding that the employee safe harbor applied to the sales representatives in the case).

In Hericks, the district court noted:

as Defendants point out, under Hericks’s reasoning, all payments to sales representatives who sell healthcare goods and services would be improper because those payments would result from referrals. Because the safe harbor language applies to payment to  individuals for employment in the provision of covered items and services, and because the Lincare employees are employed in the provision of covered items and services, the cash bonuses for referrals are not necessarily illegal remuneration in violation of the Anti-Kickback Act, providing an additional reason for the Court to dismiss this claim.

Hericks, 2014 U.S. Dist. Lexis 39706 at *54, n.17.

The highlighted language from Hericks is also critical because the court in Hericks properly recognized that, as discussed further below, the employee safe-harbor was not intended to exclude sales representatives from its application but was instead specifically promulgated to apply to sales and marketing arrangements. Hericks, at *54, n.17. If a different result had been envisioned, then, in practice, every single employed sales representative in the United States would be a potential AKS target. Certainly, Congress did not intend such an absurd result.

Halifax is also instructive. In Halifax, the Middle District of Florida pronounced that:

[T]he Bona Fide Employment Exception provides that the normal prohibition on payments to induce referrals does not apply where the payments are made to a (for lack of a better word) legitimate employee. 42 U.S.C. § 1320a-7b(b)(3). The Relator would change that to read that the prohibition on payments to induce referrals does not apply where the payments are made to a (for a lack of a better word) legitimate employee. The Relator would change that to read the prohibition on payments to induce referrals does not apply where payments are made to a legitimate employee unless they are payments to induce referrals. The exceptions set forth in the Anti-Kickback Statute and accompanying regulations “provide immunity from prosecution for behavior that might have violated the Anti-Kickback Statute.” State v. Harden, 938 So. 2d 480, 488-89 (Fla. 2006). The Relator’s interpretation of the Bona Fide Employment Exception would eviscerate it.

Halifax, 2013 U.S. Dist. LEXIS 167882 at *21

Stated differently, the court in Halifax rejected the relators’ interpretation of the employee safe-harbor because, to apply that strained interpretation, would be akin to eliminating the safe-harbor altogether. Indeed, the safe-harbor plainly protects the inducement of referrals when there is a legitimate employee-employer relationship. Halifax, at *21; see also United States ex rel. Walll v. Vista Hospice Care, Inc., 2016 U.S. Dist. Lexis 80610 at *78 (N.D. Tex. 2016) (finding that relators interpretation of the bona fide employee safe harbor would read the exception out of the statute noting that a “contrary reading” which did not include sales representatives within the provision “would make all payments to hospice providers’ sales, marketing, and other staff for involvement in patients’ securing hospice services from their employer illegal for Medicare providers, leaving such providers unable to promote their businesses by rewarding employees based on success.”).

Beyond that, Office of Inspector General, Department of Health and Human Services (OIG-HHS), the agency tasked with defining the contours of the employee safe-harbor has repeatedly reinforced that the employer-employee safe harbor is a flexible safe-harbor that explicitly contemplated providing safe harbor protection to employed sales representatives. See also Medicare and State Health Care Programs: Fraud and Abuse; OIG Anti-Kickback Provisions, 56 Fed. Reg. 35,952, 35,953 (July 29, 1991) (the employee exception permits “an employer to pay an employee in whatever manner he or she chose for having that employee assist in the solicitation of program business and applied to bona fide employee-employer relationships.”); see also Medicare and Medicaid Programs; Fraud and Abuse OIG Anti-kickback Provisions, 54 Fed.Reg. 3088, 3093 (Jan. 23, 1989)(“We believe that if individuals and entities desire to pay a salesperson on the basis of the amount of business they generate, then to be exempt from civil or criminal prosecution, they should make these salespersons employees where they can and should exert appropriate supervision for the individual’s acts.”). (emphasis ours).

The exemption also includes a part-time employee who is paid on a commission-only basis. See 56 Fed Reg at 35981. The exemption applies provided that a bona fide employer-employee relationship exists. Id.

In addition, OIG’s comments illustrate that the amount of compensation earned by contractors, or how contractors were paid, were not their main concerns with independent sales representatives. Instead, OIG appeared most concerned with the “abusive sales practices by sales personnel who are paid as independent contractors and who are not under appropriate supervision.” See 56 Fed Reg. at 35953.

In response to comments requesting that the OIG protect marketing and advertising activities because such activities promote competition or do not violate the statute, the OIG noted that many marketing and advertising activities may involve at least technical violations of the anti-kickback statute. See 56 Fed. Reg. at 35974. However, the OIG has also stated that “many of these marketing and advertising activities should not be subject to prosecution because they are passive in nature and do not involve direct contact with program beneficiaries, or because the individual or entity involved in these promotions is not involved in the delivery of health care.” Id. (emphasis ours).

For all of these reasons, the employee safe-harbor must remain a valid and critical defense for sales and marketing professionals and others when such clients are the target, or worse yet, a defendant in a criminal AKS prosecution.