Decades-Old Fraud Case Settled After More Than 12 Years

On February 10, the New York Attorney General’s office announced it had reached a settlement in a securities fraud suit filed in 2005 by then-Attorney General Eliot Spitzer. The lawsuit was filed after the company admitted to engaging in improper reinsurance transactions that materially misrepresented loss reserves and misstated underwriting results. The original settlement in 2006 resulted in the company paying $1.6 billion to settle the matter; however, the two individuals involved refused responsibility for the transactions. Now, over 12 years later, and after the two defendants’ arguments were “substantially rejected by the New York Supreme Court, the New York Supreme Court Appellate Division, First Department and the New York Court of Appeals,” the defendants have acknowledged their role in the transactions and agreed to collectively relinquish over $9.9 million they had received as performance bonuses from 2001 through 2004.

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New DOJ Official to Oversee Fraud Section

Trevor McFadden, previously a partner with the law firm Baker McKenzie, was appointed Deputy Assistant Attorney General last month, with oversight over the Fraud and Criminal Appellate Sections.  He takes over from Sung-Hee Suh, who was appointed to the role in September 2014.

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Shaw v. United States – Supreme Court Holds That Fraud Against Customer Can Be Fraud Against Bank

In Shaw v. United States, No. 15-5991 (Dec. 12, 2016), the Supreme Court ruled 8-0 that Lawrence Eugene Shaw had defrauded a national bank when he used a customer’s personal details to transfer more than $275,000 from that bank’s customer’s account to his own PayPal account. In an opinion written by Justice Breyer, the Court rejected Shaw’s arguments that the conviction was inappropriate because prosecutors could not prove that Shaw intended to defraud the bank. The Court held, among other things, that: (i) the bank had a property interest in the customer’s deposits; (ii) the defendant’s ignorance of the application of property laws to bank deposits was not a defense; and (iii) the bank fraud statute does not require the government to prove that the defendant intended that the bank would suffer a loss; rather, his knowledge that the bank likely would suffer a loss was sufficient.

Despite this finding, the Supreme Court ultimately vacated the Ninth Circuit’s decision affirming the conviction and remanded it to the appellate court for consideration of whether a claimed defect in the jury instructions was properly preserved for appeal, whether the instructions were defective, and whether any resulting error was harmless.

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Justice Department Recovers Over $4.7 Billion From False Claims Act Cases in Fiscal Year 2016

On December 14, the DOJ announced that it has obtained more than $4.7 billion in settlements and judgments in civil cases involving fraud and false claims against the government in fiscal year 2016 (ending September 30). Of the $4.7 billion recovered, $2.5 billion came from the health care industry, including drug companies, medical device companies, hospitals, nursing homes, laboratories, and physicians. The DOJ also recovered $1.6 billion from housing and mortgage settlements and judgments this past fiscal year – the second highest annual recovery in the history of the federally insured mortgage program.

There were 845 new False Claims Act suits in 2016, one of the largest totals in history. Of those, 143 were initiated by the government and 702 were brought by whistleblowers. Approximately $100 million was recovered in cases handled exclusively by whistleblowers and their attorneys—a sharp drop from the record $1.1 billion recovered in 2015, but an amount comparable to the averate amount recovered in previous years. Notably, the $4.7 billion recovered in 2016 does not include state shares. Such shares were significant in 2016 because of payouts involving the federal-state Medicaid program, with the top three health care settlements alone resulting in distributions of approximately $500 million to states.

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Argentine Sports Marketing Firm Agrees to $112.8 Million Settlement in Connection with FIFA Corruption Investigation

An Argentine sports marketing firm, entered into a deferred prosecution agreement with the U.S. DOJ on December 13, admitting to wire fraud conspiracy in connection with paying tens of millions of dollars in bribes and kickbacks to high-ranking FIFA officials in order to secure support for broadcasting rights in Argentina, Uruguay, and Paraguay for the 2018, 2022, 2026, and 2030 World Cup. The four-year DPA calls for the firm to pay approximately $112.8 million in forfeiture and criminal penalties. In announcing the DPA, the DOJ noted its consideration of the firm’s remedial actions including termination of its entire senior management team, hiring a new General Manager, Chief Financial Officer, Legal Director, Chief Compliance Officer, and Compliance Manager, cooperation, and implementation of enhanced internal controls and a rigorous corporate compliance program.

The deferred prosecution agreement is part of the DOJ’s wider investigation into corruption in international soccer. Thus far, DOJ has charged 42 defendants and obtained 19 guilty pleas in connection with the FIFA corruption prosecutions. Prior Scorecard coverage of the FIFA investigations can be found here.

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