Perfectus Aluminum Agrees to Pay $549.5 Million to Settle False Claims Act Allegations Relating to Evaded Customs Duties

Perfectus Aluminum Agrees to Pay $549.5 Million to Settle False Claims Act Allegations Relating to Evaded Customs Duties

On May 12, Perfectus Aluminum Inc., Perfectus Aluminum Acquisitions LLC, and four affiliated warehousing companies agreed to pay a total of $549.5 million to resolve allegations that they violated the False Claims Act (FCA) by knowingly and improperly evading, or conspiring to evade, antidumping and countervailing duties owed to the United States on aluminum extrusions imported from China.

The settlement resolves civil allegations that, from July 2011 through June 2014, the Perfectus entities knowingly made false statements on Customs Form 7501 Entry Summaries regarding the import of extruded aluminum. According to the US Department of Justice (DOJ), the Perfectus entities avoided antidumping and countervailing duties owed on more than 2.2 million aluminum extrusions in the form of “pallets,” which they misrepresented to US Customs and Border Protection (CBP) as finished merchandise not subject to such duties. The pallets were simply aluminum extrusions spot-welded together to make them appear to be functional pallets. However, there were no customers for these pallets between 2011 and 2014, and no pallets were ever sold.

On August 23, 2021, a jury in the Central District of California convicted the Perfectus entities of conspiracy to commit an offense against the United States or defraud the United States, wire fraud, and passing a false or fraudulent document through a customhouse. The current settlement resolves the separate civil lawsuits filed by whistleblower relators under the FCA.

For additional insight into the Perfectus Aluminum settlement, read the client alert published by our colleagues, available here.

Additionally, check out our “Five Questions, Five Answers” podcast focusing on CBP’s and the DOJ’s use of the FCA to investigate and prosecute customs fraud and trade violations, available here.

The case is United States ex rel. Rapport v. PengCheng Aluminum Enterprise Inc., et al., No. 5:15-cv-00712 (C.D. Cal.).

Read the DOJ’s press release here.

The claims resolved by the settlement are allegations only and there has been no determination of liability.

CMS Defers $1.3 Billion in Medicaid Funds From California and Implements Nationwide Moratorium on Medicare Provider Enrollment

On May 13, the Centers for Medicare & Medicaid Services (CMS) announced it will defer more than $1.3 billion in Medicaid funds from the State of California. CMS Administrator Mehmet Oz stated at that the deferral is the largest in CMS history and stems from concerns that California has a record of “outlier” program expenditures, including spending on suspect services such as in-home personal care. 

Additionally, CMS is implementing a six-month nationwide moratorium on enrollment of hospices and home health agencies into the Medicare program (see our team’s alert here), citing efforts to crack down on fraudulent activity. This bar on new Medicare enrollments applies to any changes in majority ownership. According to CMS, it will increase its investigations of alleged fraudulent agencies during this moratorium period. 

This move is part of the Administration’s new Anti-Fraud Task Force (discussed in a prior alert here) aimed at investigating and prosecuting perceived fraud, waste, and abuse in federal health care programs. According to CMS, hospice and home health agencies are high-risk categories of providers and there has been an increase in the number of these providers enrolling in Medicare in recent years, which the agency views as an indicator of fraudulent activities. 

Read CMS’ press release here.

Texas AG Warns CVS That Supplier Diversity Program May Violate Anti-Discrimination Laws, Threatens Medicaid Fraud Investigation

On May 12, Texas Attorney General (AG) Ken Paxton sent a letter to CVS Health warning that its Supplier Diversity Program may violate state and federal anti-discrimination laws. The AG gave the company 14 days to respond or face a Medicaid fraud investigation. The letter alleges that the program provides “preferential access to lucrative contracts” to “preferred groups,” including Minority- and Women-Owned Enterprises and Lesbian, Gay, Bisexual, and/or Transgender Business Enterprises.

According to the AG’s letter, CVS Health’s program bases contracting opportunities on race or sex to the exclusion of individuals of another race or sex. The letter concludes that CVS may therefore be in violation of multiple state and federal laws, including Title VI of the Civil Rights Act of 1964. As a Medicaid provider, CVS Health is subject to such laws. 

The letter further references recent federal executive actions, including President Trump’s Executive Orders 14151 and 14173, which have targeted diversity, equity, and inclusion (DEI) programs in the public and private sectors. It also references a previous legal opinion issued by AG Paxton, declaring that minority-owned business assistance programs in Texas were unconstitutional. 

This development demonstrates that state attorneys general offices are willing to use state-law equivalents of the FCA to target what they view as discriminatory DEI practices, similar to the federal government. 

Read the AG of Texas’ letter here.

Former NFL Player Sentenced to Over 16 Years for Role in $200 Million Health Care Fraud Conspiracy

On May 8, a Florida federal judge sentenced former National Football League (NFL) player Joel Rufus French to 196 months in prison for his role in a scheme to defraud Medicare and the Civilian Health and Medical Program of the US Department of Veterans Affairs of nearly $200 million. In February, after a six-day trial, a jury convicted French of conspiracy to pay and receive health care kickbacks, conspiracy to commit health care fraud and wire fraud, and conspiracy to commit money laundering. We previously covered French’s conviction here.

According to the DOJ’s sentencing memorandum, French was involved in every part of the scheme to defraud federal government health care programs. This included paying kickbacks to sham telemedicine companies that pressured victims into providing personal information, setting up and controlling eight durable medical equipment companies with fake owners, selling victims’ personal information to other telemedicine companies, and submitting fraudulent orders to federal health care programs. Many of these victims suffered from Alzheimer’s and dementia. 

According to the DOJ, upon discovery of the government’s investigation, French transferred money out of his fake business accounts, attempted to pay off co-conspirators, and directed co-conspirators to destroy records of falsified doctors’ orders. 

French sought a lesser sentence of 12 years, citing adequate deterrence, health reasons, family ties, and community service. Ultimately, the federal court sentenced French to a little over 16 years imprisonment and ordered French to pay $110 million in restitution. 

The DOJ’s press release is available here.

HealthSplash CEO Found Guilty in $450 Million Medicare Fraud 

On May 13, a Florida federal jury found former CEO of HealthSplash, Inc., Brett Blackman, guilty of conspiracy to commit health care fraud, conspiracy to commit wire fraud, and conspiracy to pay and receive kickbacks, in connection “DMERx,” a software program controlled by HealthSplash that created false prescriptions for orthotic braces. According to the government, DMERx generated about 1.3 million false prescriptions that billed Medicare more than $1 billion, of which $450 million was paid out. 

According to prosecutors, Blackman orchestrated a scheme that used misleading mailers, television advertisements, and calls from offshore call centers to pressure elderly victims into providing personally identifiable information. In turn, Blackman used this information to order medically unnecessary medical products and devices, like orthotic braces and pain creams, and bill Medicare for payment. The HealthSplash platform generated false doctors’ orders to facilitate purchases of medical products. Blackman also connected pharmacies, durable medical equipment suppliers, and marketers with telemedicine companies that would accept illegal kickbacks in exchange for signed doctors’ orders using HealthSplash and DMERx.

Blackman was originally indicted in June 2023 alongside co-defendants Gary Cox and Gregory Schreck, who were previously convicted as we discussed here.

The DOJ’s press release is available here.