The penalties will of course be fact-dependent, and, as you know, the good faith of the employer can have an enormous impact, but generally speaking, sentences for employers range from up to six months in prison for knowingly hiring an illegal worker to 10 years for harboring one.  Also, other charges and additional penalties can be tacked on for crimes like tax evasion, money laundering, bank fraud and false statements that stem from what began as an immigration-related investigation.  Immigration violations also carry significant civil fines of up to $16,000 per worker.

But jail time and fines are not the only significant penalties.   Asset forfeiture, debarment, and reinstatement requirements can also be added on, and there is also the indirect damage from lost productivity, attorneys’ fees and negative publicity.

To put these penalties in real terms, see these examples from recent cases:

The number of immigration-related bills introduced across the country in 2011 is astounding.  In 2011 alone, state lawmakers in all fifty states and Puerto Rico introduced over 1,600 immigration-related bills.  Of those bills, as of December 7, 2011, 42 states and Puerto Rico had enacted over 300 new immigration-related laws or resolutions.   

Of most importance to employers and businesses are the states that enacted laws in 2011 regarding E-Verify participation.  According to the National Conference of State Legislatures, 17 states now require E-Verify for public or private employers.   

While this list will not remain current for long, employers operating in at least the following states should pay attention to state E-Verify requirements:

• Alabama (passed in 2011) (effective April 2012)
• Arizona
• Colorado
• Florida (2011)
• Georgia (2011)
• Idaho
• Indiana (2011)
• Louisiana (2011)
• Mississippi
• Missouri
• Nebraska
• North Carolina (2011)
• Oklahoma
• South Carolina (2011)
• Tennessee (2011)
• Utah (2011)
• Virginia (2011)

While many states this year enacted laws requiring E-Verify use, a few states moved in the opposite direction.  In January 2011, Rhode Island repealed a 2008 executive order requiring use of E-Verify.  And, Minnesota’s 2008 executive order requiring some state agencies and contractors to use E-Verify expired in April 2011. 

E-Verify: Georgia

This blog is the first in a series to focus on individual states’ E-Verify requirements.  First up – Georgia. 

Effective January 1, 2012, E-Verify is mandatory for all employers with 500 or more employees in Georgia. (Georgia H.B. 87).  The Georgia law will eventually require all employers with more than 10 employees to use E-Verify.  The law kicks in for employers with 100-499 employees on July 1, 2012, and for those with 11-99 employees on July 1, 2013. 

Similar to those in the Arizona law (Arizona S.B. 1070), the penalties in Georgia include restrictions on the ability to get new or renew business licenses or other required business documents. 

Two of the new members bring strong regulatory experience to their new positions.  In addition to being a partner at a firm that represented the PCAOB in connection with its Constitutional challenge, Mr. Doty is a well respected securities lawyer who previously served as the SEC’s General Counsel.  Similarly, Mr. Ferguson served as the PCAOB’s first General Counsel and will now return to the Board following time in private practice.

Meanwhile, Mr. Hanson will draw on his thirty-plus years of experience with McGladrey & Pullen LLP, where he currently serves as a Partner and the National Director of Accounting.  His practical experience in the industry will bring an excellent new perspective to the PCAOB, as Mr. Hanson will be the first former audit partner to sit on the Board – something that should serve the PCAOB well.   

With these new appointments, the PCAOB will also be saying farewell to Charley Niemeier and Bill Gradison, two of the Board’s founding members.  Mr. Niemeier, who was the Acting Chairman when the PCAOB first opened its doors, should be credited for much of the successes and accomplishments the PCAOB has experienced since its inception, including the development of the PCAOB’s inspection program.  Mr. Gradison also served as an Acting Chairman during his term as a Board Member, and both agreed to stay on the Board for far longer than their terms while the SEC searched for their replacements.

Judge Susan Phillips Read wrote the opinion for the 4-3 majority and noted that the court was “not convinced that altering [its] precedent to expand remedies for these or similarly situated plaintiffs would produce a meaningful additional deterrent to professional misconduct or malpractice.”  Judge Read confirmed that that “the principles of in pari delicto and imputation, … which are imbedded in New York law, remain sound.” 

The in pari delicto defense allows a defendant in a lawsuit to claim that the plaintiff is at least equally at fault.  If the defense is successful, the plaintiff’s claim must be dismissed.  For the defense to be successful, the court must hold the corporation responsible for its employees’ actions by imputing the illegal actions of the corporation’s senior officers to the corporation.

This ruling is another victory in the ongoing fight against third party liability.  This issue keeps popping up across the country in courts and in Congress.  The ruling answers Delaware’s question to New York from earlier this summer.  And the decision comes only three months after the Texas Supreme Court made a similar ruling in denying third party claims against Grant Thornton.  On the other hand, the Pennsylvania Supreme Court limited the availability of in pari delicto earlier this year.

It will be important to pay close attention as more and more courts weigh in on this evolving issue and as Congress considers whether to create a private right of action for third party wrongdoing.

Since January 2011, FINRA has brought actions against at least five broker-dealers and ten individuals for either failing to conduct adequate due diligence into private placements or failing to implement adequate supervisory systems and procedures for private offerings.  These actions consistently involve the following shortcomings:

• Reviewing solely the issuer’s unverified and uncorroborated statements in the offering document;
• Failing to obtain or review the issuer’s financial statements;
• Failing to visit the issuer’s facilities or meet with its key personnel;
• Failing to research the background information on the offering’s officers;
• Failing to use the services of third-party due diligence providers; and
• Failing to identify in supervisory procedures the specific due diligence steps to be taken and firm personnel responsible for such steps.

FINRA requires that firms have written procedures outlining the steps it will undertake in conducting due diligence on its securities products.  These due diligence procedures should be designed to help firms understand the inherent risks of these products and to determine whether these products are suitable for its customers.  FINRA stated in a recent Letter of Acceptance, Waiver and Consent that “[d]etailed and robust written procedures are particularly important for private offerings, because there is no registration of the securities with the SEC and public information regarding the offering may be limited.”

Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, recently said the agency will continue its focus on sales of private placements to determine whether the selling firms fulfilled their responsibility to customers.  Broker-dealers should note FINRA’s fixation in this area.  If your firm engages in private placements, it would behoove you to assess whether your internal controls, supervisory systems and risk management practices properly address your due diligence obligations. 

Currently, broker-dealers and investment advisers are subject to different standards of care under federal law when providing investment advice about securities.  Investment advisers are regulated under the Investment Advisers Act of 1940 as fiduciaries who have a duty to serve the best interests of their clients, including an obligation not to subordinate clients’ interests to their own.  Broker-dealers, however, are regulated under the Securities Act of 1933 and the Securities Exchange Act of 1934, specific Exchange Act Rules, and FINRA Rules, among others.  Generally, broker-dealers are not subject to a statutory fiduciary duty, but rather a standard requiring suitability, fairness and transparency.

The Study’s Findings and Recommendations

-Uniform Fiduciary Standard – adoption of a standard of care “no less stringent than currently applied to investment advisers under [the] Advisers Act.”

-Harmonization of Regulation – SEC to engage in rulemaking to develop a more consistent regulatory regime.

The Opposition

Commissioners Casey and Paredes, in opposition to the Study, stated that it “does not identify whether retail investors are systematically being harmed or disadvantaged under one regulatory regime as compared to the other and, therefore, the Study lacks a basis to reasonably conclude that a uniform standard or harmonization would enhance investor protection.”  In three separate letters to the SEC, members of the U.S. House and Senate have urged the SEC to conduct a cost-benefit analysis of what changing the standard for broker-dealers will mean for investors.

As a result, it is unclear whether any new rules will ultimately result from the SEC’s Study.  However, we can be certain that they will not go into effect until late 2011, at the earliest.  At a recent Investment Company Institute (ICI) conference, a senior advisor to SEC Chairman Mary Schapiro and coordinator of the fiduciary study, Jennifer McHugh, said that SEC action will “likely occur later in the year.”  She added that the Commission had not formed a “rulemaking team” and continues to meet with outsiders “to get their reaction, rather than [move] straight to rulemaking.” 

Allison D. Charney contributed to this post. 

The Bank Integrity Unit, as Mr. Breuer called it for short in a speech before a joint conference of the American Bankers’ Association and the American Bar Association, was established to focus criminal investigation and prosecution efforts on three types of money laundering violators: (1) financial institutions, including officers and other employees; (2) professional money launderers who service criminal organizations; and (3) persons engaged in money laundering using sophisticated techniques, such as virtual currency and mobile payment systems.  Mr. Breuer acknowledged that effective compliance programs are costly, but he stated that, considering the Justice Department’s record of going after banks – big and small – for inadequate AML compliance programs, it makes business sense for banks to get into compliance.

In light of the Justice Department’s deferred prosecution agreement with Wachovia Bank, N.A., in which Wachovia was required to pay $160 million in forfeited funds and civil monetary penalties in March 2010 for lapses in AML compliance, it is understandable that the Department would take every opportunity to remind financial institutions of their Bank Secrecy Act obligations.  However, no less an AML compliance authority than John Byrne, who, since 2010, has served as Executive Vice President of the Association of Certified Anti-Money Laundering Specialists (ACAMS), was taken aback by a warning of sorts issued by Mr. Breuer to the conference attendees.  Mr. Breuer stated that if there was one message he could leave with the audience, it would be that “financial institutions simply cannot cut corners on compliance [because] having a compliance program that works is worth it. . . . [and] failing to adopt and maintain a real compliance structure will have serious consequences.”  Mr. Byrne, who works closely with all types of financial institutions, wonders what prompted Mr. Breuer to fire such a “shot across the bows” at an industry that is so committed to AML compliance. 

Committed or not, financial institutions must acknowledge that the compliance obligation is a continuous one.  It requires, at a minimum, periodic risk assessments, training, recordkeeping, reporting, and audits, as well as necessary adjustments in order to keep pace with the criminals who would use the financial institution to commit crime and to conceal the origin of illicit funds.  The failure of CommunityONE Bank to take these steps led to criminal prosecution, culminating with an agreement deferring prosecution in the Western District of North Carolina.  In its deferred prosecution agreement, the bank agreed to pay restitution to victims of an investment fraud scheme run through the bank by an individual who was convicted of fraud in December 2010.

It is abundantly clear that the Justice Department is increasing its enforcement of Bank Secrecy Act requirements against financial institutions of all sizes.  As a result, banks and other financial institutions covered by the Bank Secrecy Act can no longer claim to be the victims of fraud under circumstances in which the underlying misconduct could have been detected, and perhaps even prevented, with a robust AML compliance program.

In the words of Anne Tompkins, the U.S. Attorney for the Western District of North Carolina, “Banks asleep at the switch need to wake up. . . .  [T]he Bank Secrecy Act applies to more than just drug and terrorist financing.”

Now that’s a warning.

Money laundering is, generally speaking, conduct that involves transporting, concealing, or avoiding reporting requirements in connection with the proceeds of a Specified Unlawful Activity (SUA) or property used to facilitate an SUA.  By definition, then, money laundering requires the existence of an underlying SUA, such as fraud.  So where there is fraud, there may be money laundering.  Financial institutions risk the non-detection of money laundering whenever they withhold information about potential fraud from AML analysts.  Failing to detect money laundering exposes them to further financial losses and regulatory scrutiny. 

Even where there is no known or suspected connection between a fraudulent transaction and money laundering, banks and other financial institutions still have a legal obligation to file a Suspicious Activity Report (SAR) relating to the fraud, assuming the transaction meets a minimal threshold.  The legal obligation (as well as the voluntary option) to file a SAR must be addressed in the written AML program and is subject to regulatory oversight by AML examiners.  Thus, it seems clear that financial institutions should integrate their AML and anti-fraud capabilities.

Since September 2008, when he spoke to the Florida Bankers Association, James H. Freis, Jr., Director of the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), has been extolling the virtues of understanding the intersection of AML and anti-fraud efforts and urging financial institutions to take a landscape approach toward compliance.  Director Freis has repeatedly made the point that, especially in this economic downturn where resources are scarce, corporate compliance departments can and should combine their AML and anti-fraud resources.

Recently, in a talk to the Institute of International Bankers, Director Freis stated that a robust AML program can pay for itself through the prevention and detection of fraud.  He explained that a recent study indicated that, in 2008, banks suffered $788 million in card fraud-related losses, $1 billion in check fraud-related losses, and another $100 million in ACH fraud-related losses.  Rather than accept this nearly $2 billion in annual losses as a cost of doing business, Director Freis suggested that banks would increase their detection and prevention of fraud, and therefore significantly cut their losses due to fraud, by more closely aligning their AML and anti-fraud functions.

AML and anti-fraud efforts should also be combined for purposes of taking full advantage of FinCEN’s voluntary information sharing program, which is authorized by section 314(b) of the USA PATRIOT Act of 2001.  Section 314(b) is a program in which financial institutions (and associations of financial institutions) are protected from liability when they share information with other financial institutions that may involve possible money laundering and terrorist financing.  Because money laundering requires an SUA as a predicate, FinCEN issued guidance reminding financial institutions that information may be shared under section 314(b) if financial institutions suspect that a questionable transaction may involve the proceeds of an SUA.  By sharing information under section 314(b), financial institutions can combat money laundering and terrorist financing while saving money on fraud prevention.

Financial institutions should not wait for a significant law enforcement or regulatory action to be taken before they integrate their AML and anti-fraud efforts.  Integration is a win-win proposition and now is the time to do it.

 On July 1, 2010, President Obama signed into law H.R. 2194, the “Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010” (“CISADA” or “the Act”).    CISADA follows and builds upon the recently-passed United Nations Security Council Resolution 1929, which imposed sanctions upon Iran for its ongoing illicit nuclear activities.  CISADA amends the Iran Sanctions Act and strengthens the sanctions regulations targeting Iran that are administered by OFAC.

 While U.S. companies have been prohibited from providing goods or services to Iran for some time, recently there has been increased attention focused on foreign companies, including overseas subsidiaries of U.S. companies, with substantial business ties to Iran’s energy sector.  The revenue from energy exports drives Iran’s economy and its ability to fund its nuclear program.  Deterring investments in Iran’s energy sector is therefore considered an important part of U.S. efforts to prevent Iran from acquiring nuclear weapons. 

Legislation passed in 1996 authorized the President to impose sanctions on any foreign entity that invested $20 million or more in Iran’s energy sector, but no Administration has used the power.  CISADA ratchets up the pressure on those doing business in Iran in several ways.  First, the Act now requires the imposition of sanctions and broadens the categories of transactions that trigger sanctions, focusing on companies that sell refined petroleum to Iran or assist Iran in developing its own domestic refining capacity.  While the President continues to have the power to waive the imposition of sanctions on foreign companies, there must be a determination that the waiver is “necessary to the U.S. national interest,” a higher standard than previously existed.  The Act also includes a waiver mechanism that the President may use to avoid sanctioning an overseas business if the government with primary jurisdiction over the business is “closely cooperating” with the United States in its efforts against Iran.

In response to the attention focused on foreign companies with substantial business ties to Iran, a number of state and local governments, universities, and pension and mutual funds have decided to divest from companies with significant operations in Iran.   The Act provides a legal framework by which state and local governments and certain other investors can carry out divestment.  Among other things, the Act recognizes the authority of state and local governments to divest from companies involved in investments of $20 million or more in Iran’s energy sector and sets standards for them to do so.  The Act also provides a safe harbor for changes of investment policies by private asset managers, and it expresses the sense of Congress that divestments do not constitute a breach of fiduciary duties under ERISA.

In addition to targeting the Iranian energy sector, the Act imposes significant new obligations and restrictions on financial institutions.  Pursuant to the Act, the Treasury Department has now issued regulations that prohibit, or impose strict conditions on, the opening or maintenance in the U.S. of a correspondent or payable-through account by a foreign financial institution that Treasury finds knowingly assists key Iranian banks or the Islamic Revolutionary Guard Corps (“IRGC”).  In a sign of the urgency felt within the government on all matters Iran-related, Treasury completed the regulations within half the time allotted under the Act.  They were released on August 16, 2010 and can be found here: http://edocket.access.gpo.gov/2010/2010-20238.htm.  Treasury intends to publish the names of the foreign financial institution subject to the prohibition in an appendix to the regulations.  A domestic bank that opens a prohibited account and the foreign bank that “attempts,” or “causes” the account to be opened both face substantial civil and criminal penalties. The regulations also make clear that foreign subsidiaries of U.S. financial institutions may not engage in any transaction with Specially Designated Nationals (http://www.treas.gov/offices/enforcement/ofac/sdn/) that are agents or affiliates of the IRGC. 

There is another set of regulations still to come:  Under the Act, Treasury must issue regulations that will require U.S. banks that maintain correspondent or payable-through accounts in the U.S. for foreign banks to take steps to ensure that the foreign banks are not engaging in prohibited activities through the accounts.  The Act does not set a time within which this set of regulations is to be issued, but one assumes they will be out soon.  Given the circumstances, banks subject to these regulations should pay close attention.

The Administration still intends to go forward with a trial, but it appears that the trial decision has become ensnared in complex negotiations with the Hill.  Politico recently reported that the White House is bargaining with Senator Lindsey Grahamin an attempt to forge a comprehensive deal on detainee policy. According to the article, in return for military trials for the 9/11 plotters, Graham would support congressional funding to establish a detention facility in Illinois for some current Guantanamo prisoners, reform of laws as to who is an enemy combatant, and a preventive detention statute.

According to press reports, the President initially asked Attorney General Holder to choose the site of the trial in an effort to maintain an independent Justice Department.  So a decision that was originally intended to be insulated from politics has now become entirely entangled in politics. The detainee issues that are being negotiated are extremely difficult to resolve (they have been under discussion for years), and there is no reason to think that a grand deal can be achieved with Senator Graham, let alone the whole Congress, anytime soon.  If the KSM trial decision won’t come until the other detainee issues are worked out, we are in for a long wait.

DOJ has traditionally resisted any political intrusion into its charging decisions.  Indeed, as part of that resistance, the staff in the Main Justice building spends lots of time and energy fighting off Congressional requests for information concerning pending investigations and prosecutions.  To be sure, the KSM case is different than the ordinary federal prosecution in lots of important ways and the trial decision deserves a full discussion.  But the current uncertain status of the KSM prosecution is another demonstration of the utility of the traditional DOJ approach.

With any luck, the trial question will be decoupled from the rest of the detainee issues and decided soon.  Whether the prosecution is in a military or civilian courtroom, it will take a long time to complete.  And however the KSM decision is resolved, I hope it yields a consensus on the way forward that will permit prosecutors to move in other terrorism cases without delay.

The honest services provision expands the federal mail and wire fraud statutes to proscribe any scheme or artifice to defraud another not only of tangible property, but also of “the intangible right of honest services.”  (18 U.S.C. § 1346.)  This broadly-phrased provision has become a favorite of prosecutors precisely because of its malleability.  Following Enron’s spectacular collapse, prosecutors indicted Skilling for, among other crimes, conspiring to commit honest services wire fraud by misrepresenting Enron’s financial health to inflate its stock price, thus depriving Enron of his “honest services.”  Skilling argued that this language was unconstitutionally vague and that it criminalized complex business decisions.

Although the Supreme Court acknowledged that Skilling’s argument had force, the Court declined to rule the statute unconstitutional.  Instead, the Court narrowly construed the law, holding that the law properly criminalizes only acts of bribery or kickback schemes.  In so holding, the Court rejected the government’s contention that the statute also proscribes undisclosed self-dealing by a public official or a private employee (yet the Court left open the door for Congress to amend the statute to “speak more clearly than it has”).

The Court found that Skilling did not violate the honest services provision because the government had not alleged that Skilling solicited or received bribes or kickbacks in connection with the alleged fraudulent scheme.  Because Skilling’s indictment alleged “honest services fraud” as one of three objects of the conspiracy for which he was convicted, the Court concluded that his conviction was “flawed,” and remanded the matter to the Fifth Circuit Court of Appeals to determine whether the error was “harmless” as to the conspiracy conviction and whether it tainted all of Skilling’s myriad other convictions.  Thus, it remains questionable whether Skilling’s victory will provide him any actual relief.

The Court’s ruling does, however, clearly undermine the continued viability of the honest services law.  Gone are the days when prosecutors can freely use the law as a means to introduce evidence of immoral or unethical behavior by public officials or private executives.  Now they will have to adduce evidence that those persons engaged in bribery or kickbacks – actual criminal violations.

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As the Wall Street Journal reported, “recent insider-trading defendants have received considerably harsher sentences than similar offenders in the past.”  Yet the proposed sentencing guidelines amendments will empower prosecutors to recommend sentences that are harsher still.  For its part, the defense bar believes the penalties are already sufficiently severe, though the Justice Department insists tougher sentences are required to ensure that insiders will not act on temptations to trade. 

Securities Fraud & Insider Trading

The amendments make two significant changes in securities fraud and insider trading cases.  First, they amend the securities fraud guideline “to provide a special rule for determining loss in cases involving the fraudulent inflation or deflation in the value of a publicly traded security or commodity.”  The courts are instructed to employ the “modified rescissory method” in calculating the loss attributable to the change in value, which requires calculating the difference between the price of the security when the fraud occurred and the price of the security after the fraud was disclosed, and multiplying that figure by the total shares outstanding.  The amendment creates a “rebuttable presumption” that the figure arrived at through this calculation amounts to the “actual loss” for sentencing purposes, though defendants may challenge the number with proof that “other factors” resulted in the change in value.  “Other factors” might include overall market fluctuations or indicia of economic or industry instability.

Second, the amendments create a new minimum offense level for insider trading involving “an organized scheme” and allow for a sentence enhancement in cases where the offender used “a position of trust” (such as one “that involved regular participation or professional assistance in creating, issuing, buying, selling, or trading securities or commodities”) to “facilitate significantly the commission or concealment of the offense.” 

Mortgage & Financial Institution Fraud

The amendments alter the guidelines regarding mortgage fraud and financial institution fraud in two important ways.  First, the amendments “change how the fair market value of the collateral is determined in the case of a fraud involving a mortgage loan.”  Essentially, the value of the collateral is the market value as of the date the defendant pleaded or was found guilty.  The amendments create a “rebuttable presumption” that the fair market value is the “tax assessment value,” though the defendant may present evidence that the tax assessment value is an unreasonable measure. 

Second, the amendments provide sentence enhancements for crimes resulting in financial harms that “jeopardize[e] a financial institution or organization.”  The amended guideline lists a number of “harms” the court should consider, such as the risk of insolvency.  The courts are instructed to devise a sentence based on the likelihood that the threat would have caused harm, irrespective of whether the financial institution was spared injury by government intervention, such as a “bailout.”

Departures from the Guidelines

Importantly, the amendments provide guidance for the courts in departing from the sentence range calculated under the guidelines.  An upward departure is warranted where “the offense created a risk of substantial loss” beyond the calculated “actual loss.”  This might be appropriate in cases where the wrongdoing posed “a risk of significant disruption of a national financial market.” 

The amendments allow for a downward departure in cases where the recommended sentence range “substantially overstates the seriousness of the offense.”  This may be proper where the aggregate loss flowing from the misconduct is large, but the result is “small loss amount suffered by a relatively large number of victims.”  

Impact

The Commission must submit its amendments to Congress by May 1^st.  Absent Congress’ modification or disapproval, the amendments will be effective as of November 1, 2012. 

It will be months before the impact on these amendments is apparent.  And road ahead appears to have more twists and turns.  The Commission has made clear that the amended guidelines are unlikely to be the last iteration of the rules as they relate to fraud cases.  Judge Saris regards the amendments as only “the first step in a multi-year review of the fraud guideline.”  “This is an area of the guidelines,” she says, “that the Commission must continue to review in a comprehensive manner.” 

 Late last month, Washington State Governor Christine Gregoire signed into law the state’s first Medicaid Fraud False Claims Act.  With the signing, Washington became the twentieth state to pass such legislation

            The incentive for Washington was financial, as it was for the 27 predecessor states.  That financial incentive was established with passage of the Federal Deficit Reduction Act of 2005.  Specifically, the Act provided that states with False Claims Acts that mirror the federal False Claims Act qualify for a 10% increase in their share of any amounts recovered under those laws. 

            Like the federal False Claims Act, state False Claims Acts constitute powerful tools for fighting health care fraud.  Relying upon such acts as well as other means of recovery, state Medicaid Fraud Control Units recovered $1.75 billion from civil and criminal cases in fiscal 2011 (Report of Office of Inspector General, HHS, March 28, 2012).  During that same period, approximately $2.4 billion in total Federal False Claims Acts’ settlements were from the health care industry. 

            States that seek to take advantage of this incentive are required to submit their legislation to the U.S.  Health and Human Services Office of Inspector General, who in conjunction with the U.S. Attorney General’s Office, determines whether the state act qualifies.  The states’ False Claims Acts must:  (1) create liability to the state for the submission of false or fraudulent claims with respect to Medicaid spending; (2) provide effective rewards to facilitate the filing of qui tam actions as described in the federal False Claims Act; (3) require that such actions be filed under seal for 60 days to allow for review by the state attorney general; and (4) impose civil penalties not less than those imposed by the Federal False Claims Act, that is, treble damages and a penalty of $5,500 to $11,000 per false claim.

            Following the institution of these incentives by the Federal Deficit Reduction Act, and also subsequent to the submission and approval of various state Medicaid Fraud False Claims Acts, the federal False Claims Act was amended in significant respects by the Fraud Enforcement and Recovery Act of 2009 (FERA), the Patient Protection and Affordable Care Act (ACA), and the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act).  Among the provisions that were amended are those relating to the public disclosure defense, the definition of “claim”, reverse false claims and whistleblower protections.

            State acts that were submitted for review after passage of the amendments have been and will continue to be reviewed for their conformity with the new amendments.  State acts which were approved prior to the passage of the amendments are deemed to be compliant with the federal requirements until March 31, 2013.  After that date, state acts which had been previously approved, will no longer be considered compliant unless the states re-submit new legislation for consideration prior to that date.

            As both the federal and state governments continue to dramatically increase their enforcement efforts, all providers of health care services which are reimbursed in any respect by a federal or state health care program, must remain vigilant and prepared to defend against allegations of health care fraud, whether they are brought by individuals under the qui tam provisions of the respective acts, or by state and federal agencies acting on their own.

The announcement comes as no surprise on the heels of MacBride’s widely-reported announcements over the last several months concerning the expansion of his office’s capabilities to tackle financial crime.

The new task force will enhance the Eastern District’s ability to prosecute major national financial fraud cases.  This is but one more step in the Eastern District’s apparent competition with the Southern District of New York for these high profile cases.  The Southern District has historically been the most prominentvenue for financial fraud cases, but the Eastern District has been ramping up its efforts over the last six months and appears ready to give the Southern District a run for its money.

Known as the “rocket docket” because its judges push cases forward on an extremely expedited schedule, and armed with new prosecutors with financial expertise, the Eastern District is poised to prosecute these high-profile financial fraud cases quickly and expertly.

The Eastern District can claim jurisdiction over almost all securities fraud and other financial fraud cases involving public companies because the reports those companies are required to file with the SEC are sent to the EDGAR computer server located in Alexandria, Virginia.

In addition, the Eastern District’s proximity to Main Justice, as well as the federal agencies that will participate in the new task force, will be key to its ability to pursue these investigations aggressively and efficiently. 

The public demanded action in response to the financial crisis and the government promised a swift and aggressive response.  The Eastern District’s announcement is the latest evidence of the government’s preparations to punish financial fraud with its full weight.

The Quarterly Report highlights other investigations that showcase the breadth of SIGTARP’s reach.  As part of a mortgage fraud interagency task force, SIGTARP is investigating potential fraud at Omni National Bank (before its failure and Government takeover) and whether it had an impact on Omni’s application for TARP funds under the Capital Purchase Program.  Notably, Omni never actually received those funds.  SIGTARP investigations have also resulted in bank fraud charges against Mount Vernon Money Center executives which are connected to TARP because some of the allegedly misappropriated funds came from institutions in which taxpayers are invested through TARP.  In another fraud and money laundering case, TARP is implicated because the indicted telemarketing firm operators “took advantage of the publicity surrounding the Administration’s mortgage modification efforts” under the TARP-funded Making Home Affordable initiative to induce customers to purchase modification services that were never provided. 

These investigations – launched from multiple agencies and aimed at a range of activity emanating from TARP assets – make clear that the enforcement landscape stretches far beyond obvious misuses of TARP funds.