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Inpatient Rehabilitation Company Agrees to Pay $48 Million to Resolve FCA

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Headlines that Matter for Companies and Executives in Regulated Industries

DOJ News

Inpatient Rehabilitation Company Agrees to Pay $48 Million to Resolve FCA Allegations

DOJ announced that Encompass Health Corporation (f/k/a HealthSouth Corporation), the nation’s largest operator of inpatient rehabilitation facilities (IRFs), has agreed to pay $48 million to resolve allegations that certain facilities provided inaccurate information to Medicare to maintain their status as IRFs and to receive higher rates of reimbursement, and that certain admissions to the IRFs were not medically necessary. The settlement resolved allegations from three suits brought by private relators under the qui tam provisions of the False Claims Act: United States ex rel. Simon, et al. v. HealthSouth Corp., et al., Case No. 08-CV-236 (M.D. Fla.), United States ex rel. Higgins v. HealthSouth Corp., Case No. 3:12-CV-2496 (N.D. Tex.), and United States ex rel. Clarke, et al. v. HealthSouth Corp., Case No. 1:12-CV-853 (E.D. Va.). The relators’ collective share of the settlement will be $12.4 million.

The DOJ press release can be found here.

Laboratory Company Agrees to Pay $1.5 Million to Resolve FCA Allegations

DOJ, HHS-OIG, and the Connecticut Attorney General’s Office announced that Clinical Science Laboratory, Inc. (CSL), a Massachusetts-based laboratory company, and its owners, have agreed to pay more than $1.5 million to resolve allegations that they violated the federal and state False Claims Acts. CSL provides laboratory-testing services, including urine drug-testing services, for substance abuse patients enrolled in the Connecticut Medicaid program. The government entities alleged in part that CSL and its owners violated Connecticut’s “Most Favored Nation” regulation, which essentially prohibits clinical laboratories from seeking payment from Connecticut Medicaid for services charged at a higher price than the lowest price charged to other parties.

The DOJ press releases can be found here.

Two Individuals Charged by DOJ and SEC with Insider-Trading Scheme

The DOJ and the SEC announced that each had brought charges against an owner and principal of investment firm Midcontinental Petroleum Inc., as well as a former corporate accountant for San Diego–based biotechnology company Illumina, Inc. (Illumina), for allegedly participating in a scheme to trade on inside information that was misappropriated from Illumina. The accountant allegedly provided inside tips to the investment-firm owner, a friend, who used the information to make profitable trades, allegedly netting more than $6 million in illegal profits from the purchase and sale of Illumina securities. The accountant pleaded guilty in federal court in Manhattan to conspiracy to commit securities fraud, securities fraud, and conspiracy to commit wire fraud, and is reportedly cooperating with the government. An indictment has been unsealed against the investment-firm owner, charging conspiracy to commit securities fraud and wire fraud, securities fraud, and wire fraud. The SEC also announced charges, alleging also that the accountant received all-expenses-paid travel and other expensive gifts from the investment-firm friend. The SEC reported that it had used some of its “latest advanced software to analyze trading data, as well as traditional investigative techniques, to piece together and expose the betrayal of trust alleged in [its] complaint.” The SEC charged that the individuals knowingly and recklessly violated the antifraud provisions of the federal securities laws, and sought permanent injunctions, disgorgement with prejudgment interest, and penalties.

The DOJ press release is here.

The SEC press release is here.

SEC News

State Street Bank and Trust Co. Agrees to Pay $88 Million to Settle Charges of Overcharging Clients

The SEC announced that State Street Bank and Trust Company (State Street) has agreed to pay more than $88 million to settle charges that it overcharged mutual funds and other registered investment company clients for expenses related to the firm’s custody of client assets. The alleged overcharges, which the SEC contended spanned from 1998 to 2015, included a secret markup for the cost of sending secured financial messages through the Society of Worldwide Interbank Financial Telecommunication (SWIFT) network. The SEC alleges that, instead of charging clients for the actual amount of the expenses, State Street routinely overbilled its clients. The SEC’s order found that State Street violated Section 34(b) of the Investment Company Act of 1940 and caused violations of Section 31(a) of the Act and Rules 31a-1(a) and 31a-1(b) thereunder. State Street has agreed to cease and desist from committing or causing future violations of the foregoing provisions, to pay disgorgement and prejudgment interest of $48.78 million, and to pay a civil penalty of $40 million, without admitting or denying the SEC’s findings. The order also stated that State Street self-reported its conduct to the SEC and provided substantial cooperation to the SEC staff during the investigation.

The SEC press release can be found here.

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