March 2009 Archives

Methodist Hospital in Houston has agreed to pay the United States $9.99 million to settle allegations that it defrauded the federal Medicare program, the Justice Department announced today.

The settlement resolves allegations that Methodist improperly increased charges to Medicare patients in order to obtain enhanced reimbursement from Medicare. In addition to its standard payment system, Medicare pays supplemental reimbursement, called outlier payments, to hospitals in cases where the cost of care is unusually high. Congress enacted the supplemental outlier payment system to ensure that hospitals possess the incentive to treat inpatients whose care requires unusually high costs.

The government alleged that, between January 2001 and August 2003, Methodist improperly inflated charges for inpatient and outpatient care to make its costs for providing such care appear greater than they actually were, and thereby obtain outlier payments from Medicare that it was not entitled to receive.

"Today's settlement demonstrates the continued commitment by the Justice Department to protect Medicare when it is overcharged by hospitals," said Acting Assistant Attorney General for the Civil Division, Michael F. Hertz. "The Department has brought numerous actions against hospitals alleged to have sought excessive outlier payments, and will remain vigilant in ensuring that hospitals do not file false claims for outlier payments in the future."

"Our ultimate goal is to make certain that every Medicare dollar is used for the benefit of Medicare recipients," said Tim Johnson, acting U.S. Attorney, Southern District of Texas. "We will continue in our efforts to assure that is done."

The settlement with Methodist was the result of a coordinated effort among the Justice Department's Commercial Litigation Branch in the Civil Division; the U.S. Attorney's Office for the Southern District of Texas, Affirmative Civil Enforcement Unit; the Department of Health and Human Services, Office of Inspector General and Office of Counsel to the Inspector General; and the Centers for Medicare and Medicaid Services, in investigating and resolving the allegations.

Source: US Department of Justice

Persons who purchased or paid for (in whole or in part) Paxil CR(R) and insurance companies and other entities that reimbursed for (in whole or in part) Paxil CR(R) in the United States and its territories may be eligible for relief as part of a $28 million Proposed Settlement. The lawsuit claims that the Paxil CR(R) tablets GlaxoSmithKline ("GSK") manufactured between April 1, 2002 and March 4, 2005 contained a manufacturing defect that caused some of the tablets to split apart. GSK denies all of these claims and any liability.

If approved, the Proposed Settlement will provide up to $28 million to settle the claims in the lawsuit. Some of this money will be paid to insurance companies and other entities that made reimbursements for (in whole or in part) Paxil CR(R) and some of this money will be paid to consumers who purchased or paid for (in whole or in part) Paxil CR(R). The recovery available to insurance companies and other Third-Party Payors ("TPPs") will be based on their number of covered lives as of December 31, 2004. Consumer class members' recovery will be based on the number of Paxil CR(R) tablets that they paid for or purchased, up to $150, that were defective in that they were split before they were removed from the container in which they were purchased.

Potential Class Members do not need to do anything to stay in the class. However, they must submit a Claim Form if they wish to obtain money from the Proposed Settlement. Claim Forms are available by visiting the website www.SimonetPaxilCRSettlement.com or by calling 1-866-458-3186. Claim Forms must be postmarked by August 10, 2009.

Class Members wishing to exclude themselves from or object to the Proposed Settlement must do so as outlined in the Notice of Proposed Class Action Settlement, available by visiting the informational website www.SimonetPaxilCRSettlement.com or by calling 1-866-458-3186. Those wishing to exclude themselves from the Proposed Settlement must do so no later than May 15, 2009. Those wishing to object to the Proposed Settlement must do so no later than July 1, 2009. A Class Member must remain in the Class in order to object.

The Court has appointed the law firms Strange & Carpenter and Salas & Co., L.C. to represent the proposed Class. The Court will hold a Final Approval Hearing on July 10, 2009. At that time, the Court will consider the motion for attorneys' fees and expenses, and it will decide whether the Proposed Settlement is fair, reasonable and adequate.

SOURCE Simonet Paxil CR(R) Settlement Administrator.

- Lawsuit alleges breach of contract by MGM based upon MGM's SEC filing that there is "substantial doubt" about its ability "to continue as a going concern" -

- Infinity World requests declaratory relief from obligations under the joint venture agreement as a result of MGM's breach -

- Lawsuit intended to ensure CityCenter's long term viability and financial strength -

Dubai World today announced that its subsidiary Infinity World, which is a joint venture partner with MGM for the development of the CityCenter development project, has filed a lawsuit against MGM in Delaware Chancery Court to protect its rights and the best interests of the CityCenter project.

The lawsuit alleges that MGM's admissions in its 10-K filed with the SEC on March 17 constitute a breach of the CityCenter joint venture agreement and puts the CityCenter development project at risk. Specifically, and amongst other Risk Factors, MGM stated in its 10-K filing that "There is substantial doubt about our ability to continue as a going concern".

MGM also said it "cannot provide assurance" that its business would generate sufficient cash flow from operation or that future borrowings would be available to it under its senior credit facility in an amount sufficient to enable it to pay its indebtedness or to fund its other liquidity needs.

In its court filing today, Infinity World asked for a declaratory judgment and other measures that would relieve Infinity World of its obligations under the joint venture agreement resulting from MGM's breach.

CityCenter is a mixed-use luxury residential, resort and retail complex being developed by MGM on 67 acres between the Bellagio and Monte Carlo resorts on the Las Vegas Strip. It is owned by CityCenter Holdings LLC, a joint venture equally owned by MGM and Infinity World. The complex, scheduled to open in late 2009, has been under construction since 2005.

Dubai World said MGM's disclosure that it cannot provide assurance that it will be able to meet its future payment obligations to CityCenter has left it no other option but to act to protect its investment and the future of CityCenter. The current path of the project is simply unsustainable given our partner's financial troubles, it said.

Furthermore, the company said, MGM has mismanaged the CityCenter project, resulting in costs significantly over budget despite downsizing certain of the facilities. This has caused Infinity World to make capital contributions far in excess of the levels originally estimated by MGM.

Essentially it is being asked to pay significantly more and getting less, with only uncertainty about MGM's future, Dubai World said.

In August 2007, MGM provided an estimate of $7.488 billion to complete CityCenter. MGM has since increased that estimate by approximately $1.3 billion, to $8.8 billion. MGM anticipated a financing package of $5 billion, subsequently revised it to $3 billion, and then ultimately raised only $1.8 billion. Infinity World's contributions to CityCenter to date have equaled approximately $4.3 billion.

Ultimately, Dubai World continues to believe that the CityCenter project has enormous value and will eventually reap tremendous benefits for the Las Vegas community and its investors. It said it is committed to working closely with MGM and the project lenders to resolve these issues in an orderly way. Ensuring completion of the project on acceptable terms is why Dubai World is taking the actions it is announcing today.

In its 10-K filing with the SEC, MGM stated that it obtained a waiver of financial covenants through May 15, 2009 from its senior lenders. According to loan agreements and the waiver, after that date those lenders reserve the right to declare MGM to be in default. The 10-K stated that if the lenders exercise any or all such rights, MGM or CityCenter may determine to seek relief through a filing under the US Bankruptcy Code. Dubai World does not believe the short term waiver will benefit CityCenter in the long term and is significantly concerned about MGM's survival.

SOURCE Dubai World

Fannie Mae Left Holding Nearly $44 Million in Unpaid Principal in Refinanced Mortgage Loans

Benton J. Campbell, the U.S. Attorney for the Eastern District of New York, announced that Leib Pinter, 64, a former executive of Olympia Mortgage Corp., was sentenced today to 97 months in prison for orchestrating a scheme to defraud Fannie Mae in connection with mortgage loans that Fannie Mae owned, but were refinanced through Olympia.

Pinter was also ordered to pay more than $43 million in restitution to the victims of his fraud scheme. The sentencing proceeding was held before U.S. District Judge Sandra L. Townes at the U.S. Courthouse in Brooklyn, and followed Pinter's plea of guilty to a wire fraud conspiracy on Sept. 11, 2008.

Olympia, formerly headquartered in Brooklyn, originated and serviced mortgage loans owned by Fannie Mae. When Olympia refinanced a Fannie Mae mortgage loan, Fannie Mae typically wire transferred the money to an Olympia bank account. Olympia was then required to pay off the underlying mortgage loan by remitting the outstanding balance to Fannie Mae. Instead, Pinter misappropriated these proceeds for the benefit of Olympia. When the fraudulent scheme was revealed, Fannie Mae held nearly $44 million in unpaid principal in refinanced mortgage loans.

"The defendant took advantage of his relationship with Fannie Mae to enrich himself and others," said U.S. Attorney Campbell. "This case is yet another example of the Justice Department's swift and vigorous response to those who have corrupted our nation's lending practices." Mr. Campbell expressed his grateful appreciation to the FBI's New York Field Office, which led the government's investigation. In May 2008, Mr. Campbell announced the formation of a task force comprised of federal, state and local law enforcement agents and investigators to address the burgeoning problem of mortgage fraud.

The government's case was prosecuted by Assistant U.S. Attorneys Jonathan E. Green and Daniel A. Spector.

SOURCE U.S. Department of Justice

The government has filed two lawsuits against the Union Pacific Railroad Company for allegedly failing to prevent the use of its rail cars to smuggle large quantities of narcotics into the United States, the Justice Department announced today. The complaints, filed in San Diego and Houston, seek more than $37 million in monetary penalties. The government alleges the rail cars were brought across the border at the ports of entry at Calexico, Calif., and Brownsville, Texas.

According to the complaints, Union Pacific Railroad, the largest provider of rail transportation services in North America, has substantial Mexico rail operations, serving border gateways in California, Arizona and Texas. It is alleged in the complaints that Union Pacific has a substantial ownership-interest in the privatized Mexican railroad company Ferrocarril Mexicano (FM). Union Pacific also partners with FM to offer Union Pacific's customers the ability to move merchandise north- and south-bound between Mexico and the United States.

In accordance with Title 19, United States Code, Section 1584, the owner or person in charge of a vehicle bound to the United States is required to submit to Department of Homeland Security, Customs and Border Protection (CBP), a manifest that accurately identifies all merchandise on board the vehicle. A violation of this section mandates the imposition of civil monetary penalties.

"It is imperative for transportation providers to be vigilant in determining the nature of cargo they bring into the United States from other countries," said Michael F. Hertz, Acting Assistant Attorney General for the Justice Department's Civil Division. "These laws were established to protect the American people."

The complaint, filed in the Southern District of California, alleges that on 37 separate occasions, from November 2001 to October 2006, after Union Pacific submitted its manifests, CBP officials found a total of over 4,000 pounds of marijuana on Union Pacific rail cars north-bound from Mexico for travel throughout the United States. According to the complaint, CBP imposed mandatory monetary penalties of $33,595,112 for Union Pacific's violations but to date, Union Pacific has failed and refused to pay the civil penalties.

The government's complaint filed in the Southern District of Texas alleges that on June 16, 2003, Union Pacific submitted a manifest to CBP for entry at the Port of Entry at Brownsville, Texas. According to the government complaint, the railroad manifest indicated that the rail cars were empty. However, the suit states that CBP officials, during a routine inspection, found a total of 99 packages containing 117 kilograms of cocaine within a false wall on the bottom side of the rail car. The suit, filed in the Southern District of Texas, seeks $4,128,000.

"Railroad companies and other freight carriers must take seriously their obligations under the law to take appropriate action to prevent the use of their vehicles to smuggle narcotics and other contraband into the United States," said Karen P. Hewitt, U.S. Attorney for the Southern District of California. "This civil complaint marks an important step toward addressing the repeated failure of the largest railroad company in North America to prevent rail cars bound for travel throughout the United States from being used to smuggle significant amounts of narcotics."

"Along with the profits of doing an international transportation business comes the legal obligation to ensure contraband is not also brought into our country," said Tim Johnson, Acting U.S. Attorney for the Southern District of Texas. "The consequences of failing to meet that obligation are what this suit is all about."

"Securing the nation's rail system against the threat of cross border smuggling requires the compliance and cooperation of the rail industry," said Jayson P. Ahern, Acting Commissioner of U.S. Customs and Border Protection, Department of Homeland Security. "Failure to comply with reasonable security measures leads to vulnerabilities that are simply unacceptable when considering the consequences of illegal cross border activity."

The case is being handled in San Diego by Assistant U.S. Attorneys Joseph P. Price, Jr., and Joseph J. Purcell; in Houston by Assistant U.S. Attorney Nancy L. Masso; in Washington by Civil Division Trial Attorneys, David S. Silverbrand and Lauren A. Weeman; and with the assistance of Shelby L. Stuntz and Julie Koller, Attorneys, Department of Homeland Security, Customs and Border Protection.

SOURCE U.S. Department of Justice

Lev L. Dassin, the Acting U.S. Attorney for the Southern District of New York, and Joseph M. Demarest Jr., the Assistant Director-in-Charge of the FBI's New York Field Division, announced today that David G. Friehling, the accountant for Bernard L. Madoff Investment Securities, LLC (BLMIS), surrendered this morning on a criminal complaint charging him with securities fraud, aiding and abetting investment adviser fraud, and four counts of filing false audit reports with the U.S. Securities and Exchange Commission (SEC).

As alleged in the complaint unsealed today in Manhattan federal court:

Friehling is a CPA licensed by the State of New York and is the sole practitioner at Friehling & Horowitz, CPAs, P.C. (F&H).

BLMIS was required, under federal securities laws and regulations, to file annual certified audited financial statements with the SEC and to distribute parts of such statements to clients.

From 1991 through 2008, F&H was the accounting firm retained by BLMIS purportedly to audit BLMIS's financial statements. Friehling created BLMIS' certified and purportedly audited financial statements, including balance sheets, statements of income, statements of cash flows and reports on internal control. Friehling falsely certified that he had prepared such statements in accordance with Generally Accepted Auditing Standards (GAAS) and in conformity with Generally Accepted Accounting Principles (GAAP). Those financial statements were filed with the SEC and sent to clients of BLMIS. BLMIS paid Friehling approximately $12,000 to $14,500 per month for his services between 2004 and 2007.

Friehling failed to conduct audits that complied with GAAS and GAAP by, among other things, failing to: (a) conduct independent verification of BLMIS assets; (b) review material sources of BLMIS revenue, including commissions; (c) examine a bank account through which billions of dollars of BLMIS client funds flowed; (d) verify liabilities related to BLMIS client accounts; or (e) verify the purchase and custody of securities by BLMIS. Friehling also failed to test internal controls as required under GAAP and GAAS standards. For example, Friehling did not take any steps to test internal controls over areas such as BLMIS' redemption of client funds, the payment of invoices for corporate expenses, or the purchase of securities by BLMIS on behalf of its clients. Further, commencing at least as far back as 1995, Friehling did not maintain professional independence from his audit client, BLMIS. Specifically, Friehling and/or his wife had an account at BLMIS with a year-end net equity of more than $500,000 -- the maximum amount that, under SEC rules, he could have invested with a broker-dealer client and still maintain his independence.

The charges and allegations contained in the complaint are merely accusations and the defendant is presumed innocent unless and until proven guilty.

Friehling, 49, faces a statutory maximum sentence of 105 years in prison. He will be presented later today before U.S. Magistrate Judge Theodore H. Katz in Manhattan federal court.

"Mr. Friehling is charged with crimes that represent a serious breach of the investing public's trust," said Acting U.S. Attorney Lev L. Dassin. "Although Mr. Friehling is not charged with knowledge of the Madoff Ponzi scheme, he is charged with deceiving investors by falsely certifying that he audited the financial statements of Mr. Madoff's business. Mr. Friehling's deception helped foster the illusion that Mr. Madoff legitimately invested his clients' money."

Mr. Dassin added, "Our investigation is continuing."

FBI Assistant Director-in-Charge Joseph M. Demarest stated: "David Friehling was retained and paid by Bernard Madoff to provide accounting services to his firm, but as a purportedly independent auditor, Friehling had a fiduciary responsibility to investors, and a legal obligation to regulators to report the truth. The charges unsealed today make clear that Friehling did not fulfill those duties. He did little or no testing, no verification of the 'facts' he certified. His job was not merely to rubber-stamp statements he didn't verify. Simply put, Friehling failed to do his job, and lied to investors and regulators in saying he did."

Mr. Dassin praised the investigative work of the FBI and thanked the SEC and the Rockland County District Attorney's Office for their assistance.

Assistant U.S. Attorneys Marc Litt, Lisa A. Baroni, William J. Stellmach, Barbara A. Ward and Sharon Frase are in charge of the prosecution.

SOURCE U.S. Department of Justice