DOJ Once Again to Corporate Community: White Collar Criminal Enforcement Not Slowing Down

DOJ Once Again to Corporate Community: White Collar Criminal Enforcement Not Slowing Down

On December 9, at the Practising Law Institute White Collar Crime symposium in New York City, New York, Acting Chief Counselor of the Criminal Division of the US Department of Justice (DOJ), Keith D. Edelman, discussed DOJ’s recent white collar enforcement actions and priorities for future prosecutions. Edelman explained that the DOJ enforcement activities are driven by a simple philosophy: greed harms investors, consumers, and the larger US economy, and it is the DOJ’s responsibility to hold alleged wrongdoers accountable. He made clear that the Criminal Division will charge companies “when [DOJ] has sufficient evidence and a negotiated resolution cannot be reached pre-indictment[,]” cautioning that if the DOJ is prepared to indict, then it is prepared to go to trial.

Edelman highlighted several stand-out areas of success for the DOJ’s Criminal Division in the last year. Specifically, Edelman noted that the DOJ continues to focus on health care fraud, investment market and consumer fraud, trade and customs enforcement, cartel and elicit financing operations, and foreign bribery. Edelman attributed the Criminal Division’s successes to its sustained investments in data analytics, interagency coordination, and revamped corporate enforcement policies. As a throughline, Edelman underscored that the DOJ will focus on enforcement actions that safeguard the public, the domestic economy, and national security. He also emphasized that the DOJ continues to invest in interagency cooperation.

Of note, Edelman reiterated recent DOJ comments about the benefit companies will receive when they proactively disclose wrongdoing to the DOJ and fully cooperate with DOJ investigations. For instance, Edelman highlighted this summer’s non-prosecution agreement with Troy Health, Inc. in connection with its admissions regarding fraudulent Medicare enrollment, the deferred prosecution agreement with Kimberly-Clark Corporation in connection with its admissions regarding adulterated surgical gowns, and the decision to not prosecute Liberty Mutual after it voluntarily disclosed Foreign Corrupt Practices Act (FCPA) violations. Edelman previewed that additional resolutions will be announced in the coming weeks and months.

Although Edelman emphasized the need for companies to communicate and cooperate, his speech made clear that there is an important third “c” to that formula: compliance. Without a strong compliance program, Edelman cautioned that companies are unlikely to benefit from deferred or non-prosecution agreements.

Key Takeaways for Companies and Executives

• White Collar Criminal Enforcement Is Not Slowing Down: Edelman’s remarks, like those before his by other senior DOJ officials in the current administration, seemed designed to make clear that — contrary to some public reporting — the DOJ is not backing away from corporate criminal investigations and prosecutions. Companies and their leaders must continue to actively monitor and investigate alleged wrongdoing, especially if those actions are prompted by whistleblower reports, or risk triggering large-scale DOJ enforcement actions.
• Early Self-Reporting May Avoid Lengthy Investigations: When companies become aware of potential criminal conduct, they should promptly engage outside counsel to evaluate the need for, properly scope, and conduct an internal investigation and advise them on the costs and benefits of early disclosure and good-faith cooperation with the DOJ.
• Compliance Programs Continue to Be a Core Component for Early Resolutions: Now is not the time to pull back on internal compliance programs. When deciding whether to decline or defer prosecution, the DOJ will heavily weigh whether a company has a robust and well-implemented compliance program, with a focus on effective early warning procedures and systems.  

Nursing Home Owners Accused of Funneling 10s of Millions of Dollars From Medicaid

On December 10, the New Jersey Office of the State Comptroller (OSC) issued a report detailing their over five-year investigation of two nursing homes and allegations that the owners, Daryl Hagler and Kenneth Rozenburg, engaged in a fraudulent scheme to divert 10s of millions of dollars from Medicaid.

The report alleges that Hagler and Rozenburg funneled money from the nursing homes’ finances into their bank accounts using companies that they owned and controlled. As part of their scheme, Hagler and Rozenberg allegedly moved approximately $92 million through their interrelated companies, which was roughly two-thirds of the $134.8 million they received in Medicaid funding from New Jersey. Hagler and Rozenberg allegedly hid their deals from the government, including through mortgages, rent payments, and loans. The report also illustrated the “alarming quality of care issues” that were linked “to chronic staffing deficiencies at the nursing homes.” According to the report, Hagler and Rozenburg intentionally understaffed their facilities, including understaffing one of their nursing homes by an average of almost 54% daily.

Hagler and Rozenburg own or are involved with at least 46 nursing homes nationwide. The Office of the State Comptroller began their investigation after they learned that the New York Office of the Attorney General’s Medicaid Fraud Control Unit filed a petition alleging that Hagler, Rozenburg, and others defrauded the New York Medicaid program of approximately $83 million. The OSC will seek to recover damages and penalties, including False Claims Act (FCA) penalties and, $86.3 million, “an extrapolated overpayment amount, for the grievous lack of direct care staffing at the facilities,” and $27.8 million in “improperly spent Medicaid funds.”

Read the OSC’s report here.

Insurance Broker Accuses Whistleblower of Photographing Privileged Documents in FCA Case

On December 9, Insurance brokers eHealth, Inc. and eHealthInsurance Services, Inc. (together, eHealth) filed a motion seeking to depose the relator in an FCA case, Andrew Shea. eHealth alleges that Shay took unauthorized pictures of materials from his eHealth-administered laptop and cellphone that may be privileged or are attorney work-product.

Shay filed a qui tam complaint in November 2021, alleging that several insurance carriers paid tens of millions of dollars in kickbacks to eHealth, along with other insurance brokers, to induce them to refer individuals to their Medicare Advantage plans in violation of the FCA. In May, the government joined the suit, further alleging that “three of the nation’s largest health insurance companies” knowingly and willfully paid hundreds of millions of dollars in kickbacks that were disguised as “marketing,” “co-op,” or “sponsorship” payments to “some of the nation’s largest insurance brokers,” including eHealth.

In its December 9 Motion, eHealth alleged that Shay used his personal tablet to take photographs of communications between eHealth and its attorneys, which eHealth only found out about on October 24, from Shay’s counsel. eHealth argues that it needs discovery to determine whether Shay’s unauthorized access to eHealth’s protected materials has tainted the case. eHealth stated that the exposure to privileged materials may have “influenced the Government’s investigation and decision to intervene” in the FCA case. At this time, eHealth has not sought any other remedies resulting from Shay’s access to privileged documents but asserts that “additional remedies may be required.”

In August, the nine named defendants filed a motion to dismiss the government’s complaint, which is currently pending before the court.

The case is US v. eHealth, Inc., et al., No. 1:21-cv-11777 (D. Mass.).

AI Executive Indicted for $20 Million Wire Fraud

The government charged Marcus Cobb, co-founder and chief executive officer of an artificial intelligence (AI) tech startup, Mozaic Payments, Inc., with defrauding a Boston, Massachusetts private equity firm out of $20 million.

On December 8, Magistrate Judge Jennifer C. Boal of the US District Court for the District of Massachusetts, unsealed the indictment charging Cobb with conspiracy to commit wire fraud. The indictment alleges that Mozaic is a technology company that offered customers in the entertainment industry a software application that processed revenue-sharing transactions and used an innovative application programing interface (API). According to the indictment, neither the Mozaic App nor the API functioned, and the App generated no revenue.

The indictment further alleges that Cobb and his co-founder falsely represented Mozaic’s financial condition to obtain a $20 million investment from a private equity firm in Boston. Cobb and the co-founder allegedly provided false financial documents, including bank statements and balance sheets, and fake customer testimonials about the Mozaic App and its API to misrepresent Mozaic’s profitability. If convicted, the indictment provides that the government will seek a $1.8 million forfeiture from Cobb.

The case is US v. Cobb, No. 1:25-cr-10439 (D. Mass.).

An indictment is merely an allegation. All defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.