Florida Securities Fraud Lawyer Blog

LPL Financial LLC has signed a Letter of Acceptance, Waiver and Consent ("AWC") to resolve allegations by FINRA that it made material misrepresentations to the regulator during its investigation of significant and repeated e-mail failures by the firm.

According to the AWC, between 2007 and 2013, LPL suffered 35 separate, significant failures in its e-mail review and retention system resulting in the firms' inability to access hundreds of millions of e-mails and its failure to review tens of millions of e-mails. FINRA further alleged that LPL's failure to review and retain e-mails, resulted in its failure to produce responsive e-mails in federal and state regulatory proceedings, and to customers in arbitration proceedings.

FINRA claims that, as LPL rapidly grew its business during this time frame, it failed to devote significant resources to managing and integrating the various and fractured e-mail systems of its newly acquired independent contractors and financial institutions. According to the AWC, LPL was aware of the e-mail problems, but failed to invest in the compliance and technological resources necessary to correct the problem.

The AWC also reflects that LPL made material misrepresentations to FINRA during its investigation of the matter, including LPL's statement that it first discovered the problem in 2011, when in reality, the firm was aware of problems and red flags as early as 2008.

LPL has agreed to pay a fine of $7.5 million and to establish a $1.5 million fund to compensate LPL customers for any failure by LPL to produce e-mail discovery in arbitrations initiated on or after January 1, 2007 and that were closed before December 17, 2012. The Plan of Distribution contained within the AWC, reflects that notice to the eligible LPL customer claimants will be sent out within 30 days. Upon request, the eligible claimants may elect to receive payment of $3,000 or request that the fund administrator determine the appropriate monetary sanction for LPL's actual or apparent failure to produce e-mails in the arbitration - up to a maximum amount of $20,000.

Ranbaxy USA, Inc., a division of generic drug manufacturer Ranbaxy Laboratories Limited based in India, has agreed with the U.S. to settle criminal and civil charges. The charges relate to the manufacture and distribution of allegedly adulterated drugs made at two Ranbaxy facilities in India. A drug is deemed to be "adulterated" if it is not manufactured or processed in accordance with Good Manufacturing Practice ("GMP") regulations. According to the Justice Department, the drugs at issue are Sotret, gabapentin and ciprofloxacin produced at Ranbaxy's facilities in Paonta Sahib and Dewas, India.

The federal Food, Drug and Cosmetic Act ("FDCA") prohibits the sale of any drug that is adulterated. Ranbaxy USA pleaded guilty to violating the FDCA and making material false statements to the Food and Drug Administration. In connection with the plea deal, Ranbaxy USA will pay a $130 million criminal fine and forfeit an additional $20 million.

In addition to the criminal plea agreement, Ranbaxy agreed to pay $350 million to resolve allegations that it caused false claims to be submitted to Medicare, Medicaid, TRICARE and other government health care programs. According to the Justice Department, Ranbaxy manufactured and distributed drugs whose strength, quality, or purity deviated from the drugs' specifications or that were not manufactured in accordance with GMP standards. As a result, the government claims that Ranbaxy knowingly caused false submissions to be made to government health care programs in violation of the False Claims Act.

The civil settlement resolves a whistleblower lawsuit brought under the qui tam provisions of the False Claims Act by Dinesh Thakur, a former executive of Ranbaxy. Thakur will receive approximately $48.6 million of the settlement proceeds as a reward under the qui tam provisions of the False Claims Act.

New Jersey-based C.R. Bard, Inc. ("Bard"), a manufacturer and marketer of medical products, has agreed to settle a qui tam action for $48.26 million. According to the Justice Department, the suit relates to Bard's sales of brachytherapy seeds ("seeds") used to treat prostate cancer. Brachytherapy seeds are small radioactive pellets that are implanted in the body at the site of a tumor to help shrink the tumor.

A whistleblower suit was filed under the qui tam provisions of the False Claims Act by Julie Darity, a former Bard manager for brachytherapy contracts. The Complaint alleged that, between 1998 to 2006, Bard paid illegal kickbacks to customers and physicians to induce them to purchase Bard's seeds for use in prostate cancer patients. It was also alleged that the medical providers then submitted bills to Medicare and/or Medicaid for the seeds, which the government claims were false because of the illegal remuneration the providers had received from Bard.

Bard has agreed to pay $48.26 million to resolve the allegations. The whistleblower will receive $10,134,600 of the settlement amount as her reward under the qui tam provisions of the False Claims Act.

Two landlords accused of shaking down low-income tenants for excess rent payments were recently sued under the federal False Claims Act. According to the U.S. Attorney for the Southern District of Florida and Legal Services of Greater Miami, the landlords George David Horton, a pastor at Greater New Bethel Baptist Church, and John Joseph, unlawfully received excessive rent subsidies from low-income tenants Sabrina Newberry and Taronda Wade.

According to the government, Horton and Joseph both participated in the United States Department of Housing and Urban Development's ("HUD") Housing Choice Voucher/Section 8 ("Section 8") program. Through Section 8, HUD distributes federal funds to local public housing agencies, such as the Miami-Dade Public Housing and Community Development, to assist eligible low income families with obtaining decent, safe, and sanitary housing in the private rental market. The government claims that when Horton and Joseph applied to receive federally subsidized rents, they contractually agreed to charge only the rent authorized by the Miami-Dade Public Housing and Community Development.

According to the government, Horton and Joseph charged Wade and Newberry additional "secret" rents over and above the Section 8 subsidy, and threatened eviction for non-payment. Wade and Newberry, both originally represented by Legal Services of Greater Miami, each filed whistleblower actions under the qui tam provisions of the False Claims Act. The whistleblowers alleged that Horton and Joseph violated the False Claims Act by charging and accepting excessive rents in violation of HUD rules.

The federal government intervened in both of Newberry's and Wade's qui tam actions.

Horton agreed to pay $50,000 in settlement of the lawsuit originally brought by Newberry. Of the settlement amount, the whistleblower Sabrina Newberry will receive $5,377, plus her attorney's fees, under the qui tam provisions of the False Claims Act.

In the action against Joseph, Judge Marcia Cooke granted the United States' Motion for Summary Judgment and awarded $35,194 to the government and $4,398, plus costs and attorney's fees, to whistleblower Taronda Wade.

California-based Adventist Health System/West d/b/a Adventist Health ("Adventist") and its affiliated hospital White Memorial Medical Center ("White") have agreed to settle a False Claims Act case with the U.S. and the state of California. As part of the settlement, Adventist and White agreed to pay $11.5 million to the federal government and $2.6 million to the California Department of Health Care Services.

According to the Justice Department, Adventist and White paid illegal kickbacks to physicians who referred patients to White. The U.S. alleged that the entities paid referring physicians above fair market value to provide teaching services at White's family practice residency program. In addition, it was alleged that Adventist and/or White transferred assets, including medical and non-medical supplies, to referring physicians at prices below fair market value.

The allegations were first made in a whistleblower lawsuit filed in 2008 under the qui tam provisions of the False Claims Act by two internal-medicine physicians, Hector Luque and Alejandro Gonzalez. According to the Los Angeles Times, the allegations primarily focused on the relationship between White and two physician groups - Family Care Specialists and White Memorial Medical Group.

Under the qui tam provisions of the False Claims Act, the whistleblowers will receive approximately $2.8 million of the settlement proceeds as their reward.

New Jersey-based Novartis Pharmaceuticals Corporation has been sued by the United States a second time for allegedly paying kickbacks to health care providers in return for prescribing Novartis drugs that were reimbursed by Medicare, Medicaid and TRICARE. In September 2010, Novartis settled a similar suit regarding its drugs Trileptal, Diovan, Zelnorm, Sandostatin, Tekturna, and Exforge.

The Complaint filed by the U.S. in the Southern District of New York alleges that the company induced physicians to prescribe its hypertension drugs, Lotrel and Valturna, and its diabetes drug, Starlix, in exchange for illegal kickbacks in the form of fishing trips, lavish dinners and payments to doctors as "honoraria" for speaking. According to the Complaint, the speaking programs were little more than social occasions for the doctors, including several that were held at Hooters restaurants, and others that either did not occur or had few or no attendees.

The allegations were first made by whistleblower Oswald Bilotta, a former Novartis sales representative, under the qui tam provisions of the False Claims Act. If the government is successful in recovering any funds from Novartis, the whistleblower may be entitled to a portion of the proceeds as his reward in accordance with the qui tam provisions.

In a less than shocking move, FINRA has scrapped its proposed rule regarding BrokerCheck access after receiving pushback from the securities industry. The proposed rule mandated that brokerage firms include a direct link to its stockbrokers' and firm's specific BrokerCheck reports - rather than the BrokerCheck homepage - on its website and social media pages. Currently, firms and brokers are only required to provide customers with the BrokerCheck hotline number and FINRA website address in writing.

According to InvestmentNews, the negative comment letters received by FINRA claimed the rule was too broad and would have created significant technical hurdles for the firms.

The Securities and Exchange Commission ("SEC") announced that the victims of a fraudulent security offering targeting non-U.S. investors will receive the return of their principal investment. In February, the SEC requested and obtained a court order freezing $147 million of investors' funds being held in escrow by Anshoo R. Sethi and two of his companies, A Chicago Convention Center, LLC and Intercontinental Regional Center Trust of Chicago, LLC. In addition, the assets of Sethi and the companies were frozen.

According to the SEC, investors were led to believe they were financing the construction of a hotel and conference center near Chicago's O'Hare Airport. In addition, the SEC alleged that Chinese investors were misled about the prospect of gaining legal residency through the EB-5 Immigrant Investor Pilot Program.

Subsequent to the asset freeze order obtained by the SEC in February, Sethi and his companies terminated the investment offer and consented to the return of the investors' funds. A federal judge has since modified the order and directed the return of the investors' escrowed funds. The litigation remains pending and the rest of the asset freeze order remains in place.

New York investment firm, Starboard Value, Office Depot's largest shareholder with approximately 15% of its stock, has sent a letter to Office Depot's board that it intends to seek approval of its proposed board members directly from the shareholders. Starboard filed a preliminary consent solicitation letter with the Securities and Exchange Commission that would permit Starboard to seek approval of its proposed board candidates, even if no shareholder meeting is held.

Starboard claims that the board needs to be restructured and filled with more experienced members to complete the proposed merger with OfficeMax, while looking out for the best interests of the shareholders. Starboard's letter states the board needs to be revamped now and cannot wait until the vote later this year on the proposed merger with OfficeMax.

The proposed merger with OfficeMax was announced in February. The proposed merger has to be voted on by the shareholders and is under review by the Federal Trade Commission.

The Florida Legislature is currently considering a pair of bills designed to update Florida's False Claims Act, section 68.081, et seq, Florida Statutes ("Florida FCA"). Modeled after the Federal False Claims Act ("Federal FCA"), the Florida FCA authorizes private individuals or whistleblowers to bring "qui tam" suits, in the name of the state government, to seek damages against persons entities that have defrauded the state. As an incentive to bring these suits, the Florida FCA allows a successful whistleblower, called a "relator," a share of the damages received. Like its federal counterpart, the Florida FCA is designed to protect taxpayers by encourages private citizens who know about fraud to "blow the whistle."

Recent Changes to Federal FCA

In the past few years, the Federal FCA has undergone significant revision. In three major pieces of legislation - the Fraud Enforcement and Recovery Act of 2009 ("FERA"), the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd Frank"), and the Patient Protection and Affordable Care Act of 2010 ("PPACA") - Congress broadened the liability provisions of the Federal FCA, strengthened its anti-retaliation provisions, amended its "original source" requirements for bringing suit, and made other changes.

The Florida FCA, meanwhile, has remained unchanged. This poses a problem in large scale government fraud cases, such as healthcare fraud, where fraudsters routinely victimize federal and state government simultaneously, ripping off Medicare (the federal program) and Medicaid (the state program) at the same time. It makes little sense to impose different standards of liability in such cases.

The Proposed Bills

To remedy these issues, the Florida Legislature is currently considering House Bill 935 and Senate Bill 1494, both designed to bring Florida's FCA into conformity with the Federal FCA and increase protection for State Government. The bills propose the following significant changes, among others:

1. The bills clarify that fraudsters need not present false claims directly to the government to be liable. Liability also attaches when false claims are presented to government contractors or subcontractors, provided that the provided that the government has provided the funds or will reimburse the funds that are sought by the false claim.

2. The bills modify the standard of intent to conform to the Federal FCA.

3.The bills expand the scope of the Florida FCA to cover fraud against "any department, division, bureau, commission, regional planning agency, board, district, authority agency or other instrumentality of the state."

4. The bills expand coverage for "reverse false claims." This includes conduct in which the fraudster, rather than submitting an affirmative false claim, improperly retains money deu to the state or under-reports a duty to pay funds to the state.

5.The bills limit the types of "public disclosures" of the fraud that would disqualify a whistleblower from bringing a claim.

6.The bills modify the definition of "original source," a requirement for bringing claims in some instances.

7. The bills expand the power of the Department of Legal Affairs to conduct civil investigations of false claims cases. If enacted into law, the new changes will become effective July 1, 2013.

To view House Bill 935, click here.

To learn more about False Claims Act cases, click here.

The Financial Industry Regulatory Authority ("FINRA") has filed a complaint against New York-based John Thomas Financial ("JTF") and its CEO Anastasios "Tommy" Belesis. FINRA alleges that JTF and Belesis committed fraud in connection with the sale of America West Resources, Inc. common stock. FINRA also alleges that JTF and Belesis intimidated registered representatives, failed to provide the best execution for its customers' orders, and committed other securities violations.

According to FINRA, JTF and many of its customers held thinly traded pink-sheet stock in America West. On February 23, 2012, FINRA claims that, when the price of America West spiked by over 600%, JTF sold the majority of its proprietary position in America West for a profit of over $1 million. FINRA claims that JTF sold its proprietary shares, rather than execute approximately 15 customer sell orders, to the detriment of its customers. America West subsequently sought bankruptcy protection and its shares are now virtually worthless.

FINRA's Complaint asserts that JTF and Belesis made material misrepresentations to its customers and employees concerning the reasons the customers' sell orders were not placed on February 23, 2012. Allegedly, Belesis and JTF made false statements that there was a problem with the clearing firm's trading system, there was insufficient volume to fulfill the orders, and that the shares were restricted from sale by the Securities Act of 1933.

A copy of FINRA's Complaint can be viewed here.

Fortune 500 biotech firm Amgen, Inc., based in California, has agreed to pay $24.9 million to settle allegations that it defrauded various federal and state health programs including Medicare and Medicaid. According to Florida Attorney General Pam Bondi, $14.7 million of the settlement amount will be shared among several states, with Florida to receive $207,000.

The settlement resolves allegations first made by Amgen employee Frank Kurnik in a whistleblower action brought under the qui tam provisions of the False Claims Act. The whistleblower alleged that Amgen paid illegal kickbacks to three institutional pharmacies - Omnicare, PharMerica Corp and Kindred Healthcare. According to the complaint, the kickbacks were paid in return for the pharmacies' implementation of "therapeutic interchange" programs in the nursing homes or long-term care facilities they served. Therapeutic interchange programs were allegedly designed to induce medical professionals to switch Medicare and Medicaid patients from Procrit to Amgen's anemia drug Aranesp,

Kurnik will receive a portion of the settlement amount as his reward under the qui tam provisions of the False Claims Act.

Last year, Amgen accepted a guilty plea for illegally introducing Aranesp into interstate commerce as a misbranded drug. At that time, Amgen also agreed to pay $762 million to resolve criminal and civil liability arising from its sale and promotion of certain drugs. The blog post concerning that action can be found here.

Halifax Hospital Medical Center ("Halifax"), in Daytona Beach, Florida, is preparing to battle the United States in what could be the largest whistleblower case of its kind in the nation.

According to whistleblower Elin Baklid-Kunz, Halifax violated the False Claims Act by submitting claims to Medicare and Medicaid for unnecessary hospital admissions and inappropriate spinal surgeries, and paid illegal kickbacks to physicians. Baklid-Kunz, the current director of physician services for Halifax, claims the wrongdoing went on between 2000 and 2011.

Baklid-Kunz filed a whistleblower action under the qui tam provisions of the False Claims Act in 2009.

The complaint alleges that between 2000 and 2011, Halifax billed Medicare and other government health care programs more than $30 million for unnecessary admissions and paid over $178 million in illegal kickbacks to physicians. According to the whistleblower, one of several internal audits conducted by the hospital showed that during one month in 2008, 82 percent of patients admitted for chest pain did not meet the criteria for admission.

The United States partially intervened with respect to allegations that Halifax violated the Stark law, which prohibits medical facilities from billing Medicare for services referred by physicians that have an improper financial relationship with the facility. In this case, the government alleges that Halifax paid improper incentive bonuses to six oncologists and three neurosurgeons.

The trial is set to begin in the U.S. District Court for the Middle District of Florida in November. Under the qui tam provisions of the False Claims Act, the whistleblower may be entitled to a portion of the recovery as her reward.

A jury took only ten minutes to convict former Delray Beach Commissioner, Charlotte Durante, of orchestrating a $1.8 million Ponzi scheme that targeted more than 80 investors, most of whom were Haitian.

Durante was convicted of two felony counts - one count of money laundering and one count of organized scheme to defraud greater than $50,000. When sentenced, Durante faces up to 60 years in prison.

Durante, a long-time realtor, was the first African-American woman to serve on the Delray Beach City Commission when she was elected in 1978.

According to prosecutors, Durante solicited 83 investors to supply down-payment funds that were supposed to be used by her real estate clients looking to buy houses. According to prosecutors, from October 2006 to September 2008, Durante allegedly promised these investors they would receive returns of 16 to 18 percent in four months.

Instead, the government claimed Durante used the money to pay personal expenses for herself and her daughter, to buy property for the Museum of Lifestyle and Fashion History, a business run by her daughter Lori Durante, and to pay earlier investors in Ponzi scheme fashion.

In honor of Consumer Awareness Week, the Florida Department of Financial Services has added new financial education resources on its website. The OnDemand Library includes short educational videos on a variety of financial and insurance topics. The videos include explanatory materials on such topics as identity theft, annuities, trust mills, and reverse mortgages. In addition, a new video concerning business identity theft aims to help small business owners from becoming a victim of this growing trend.

Florida's Chief Financial Officer, Jeff Atwater, has additional financial resources on his website at www.myfloridacfo.com.

On Guard for Seniors focuses specifically on financial and insurance issues faced by Florida's rapidly increasing population of seniors. It also contains tips on how to prevent becoming a victim of financial fraud.

Financial Frontlines offers resources geared toward the needs of military servicemembers.

Your Money Matters provides generalized financial tips for everyone, including financial calculators and interactive presentations to increase knowledge of various financial topics.