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Top Ten State Fraud Recoveries of 2021

Posted  January 21, 2022

State enforcement of anti-fraud laws is an important deterrent and tool to create accountability.  In cases of healthcare fraud and financial fraud, including government contract fraud, unlawful kickbacks, and tax evasion, state governments act as critical enforcement authorities, including through state False Claims Acts.

Whistleblowers with information about fraud that violates state laws, or involves state funds, should always consider reporting to state enforcement authorities.  Many state False Claims Acts allow whistleblowers to report fraud and misconduct in state government contracts and programs by bringing a private action on the state government’s behalf, with the promise of a potential reward of a portion of the state’s recovery.

State enforcement often goes hand-in-hand with federal enforcement by the Department of Justice or federal enforcement agencies.  In addition, multiple states may bring coordinated actions against a defendant.  Many of the recoveries on our Top Ten list below include recoveries at both the state and federal levels, or involve related actions in different venues.  For whistleblowers in healthcare, government procurement, finance, and other fields, it can be important to retain counsel experienced in working with state governments and on cases where different levels of government enforcement must be coordinated.

Our Top Ten State Healthcare and Financial Fraud Recoveries of 2021 are:

  1. Opioid Settlements – Multistate — $26.3 Billion. State and local entities continued their enforcement efforts against opioid manufacturers and distributors, with mega-settlements entered into between thousands of state and local entities and drug manufacturers Johnson & Johnson and Indivior, and drug distributors McKesson Corporation, Cardinal Health Inc., and AmerisourceBergen Drug Corporation.  The $26 billion settlements with J&J and the distributors would resolve claims that the three distributors allegedly failed to fulfill their legal duty to refuse to ship opioids to pharmacies that submitted suspicious drug orders, and that J&J allegedly misled patients and doctors about the addictive nature of opioid drugs.  The Indivior settlement, for $300 million, resolves claims, including six actions brought by whistleblowers, that the company caused the misuse of state Medicaid funds by falsely marketing the withdrawal drug Suboxone – a powerful opioid itself – for unsafe, ineffective, and medically unnecessary purposes, and allegedly took steps to fraudulently delay the entry of generic alternatives in order to control pricing.
  2. Centene Corp. – Ohio, Mississippi, Kansas — $171.4 million. The pharmacy benefit manager resolved claims by three states that it overbilled the states’ Medicaid programs.  As a pharmacy benefit manager, or PBM, Centene was hired by each state’s Medicaid plans to help manage the plans’ prescription drug programs, including by contracting with and reimbursing pharmacies, creating preferred drug lists, and negotiating rebates with pharmaceutical companies.  The states accused Centene of a lack of transparency, with a reporting system that allegedly made it difficult for the states to determine the nature and appropriateness of certain pharmacy transactions.  Centene’s opaque reporting concealed that the company was charging amounts above allowed price caps based on industry standards, failing to disclose discounts received, inflating dispensing fees, and claiming reimbursement for prescriptions already paid for by third parties.
  3. Sandell – New York — $105 million. New York’s False Claims Act allows whistleblowers to file actions to report state tax fraud, and New York’s settlement with hedge fund manager Sandell also landed on our Top Ten Tax Recoveries list and our Top Ten Whistleblower Awards list – a trifecta that shows the power of whistleblowers in state enforcement.  Sandell had attempted to shield management and performance fees from his New York-based Sandell Asset Management Corporation from New York state taxes by falsely claiming to operate through a shell company in Florida, personally moving to London for a period of time – and by firing the accountant who told him he was still subject to New York state taxes.  The whistleblower who came forward with information that disclosed the scheme to the state received an award of $22.05 million.
  4. TIAA-CREF – New York — $97 million. This settlement, secured in a joint investigation by the SEC and New York, resolved claims that the investment advisor mislead individual customers and failed to disclose conflicts of interest, pressuring them to move their investments from low-cost employer-sponsored retirement plans to higher-cost individually-managed accounts, which generated hundreds of millions of dollars in fees for TIAA.  This settlement illustrates the potential for overlap between federal financial enforcement and state enforcement, and also appears on our Top Ten SEC and CFTC Recoveries of 2021.  Notably, SEC whistleblowers may be eligible for awards based on recoveries by other enforcement authorities in related actions.
  5. Mortgage-Backed Securities – New Mexico — $32.5 million.  Yes, there is still ongoing litigation about failures by banks in the marketing of mortgage-backed securities leading up to the 2008 financial crisis.  In this matter, initiated by a whistleblower under New Mexico’s Fraud Against Taxpayer’s Act, New Mexico secured a settlement with Barclays Capital Inc., Citigroup Global Markets Inc., Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, NatWest Markets Securities Inc., and Washington Mutual Mortgage Securities Corp., resolving allegations that the banks did not adequately disclose the characteristics of certain mortgage-backed securities sold to New Mexico pension funds and a state-run investment council between 2003 and 2010.
  6. South Bay Mental Health Center, Inc. – Massachusetts — $29 million. In this action initiated by a whistleblower under the Massachusetts False Claims Act, the healthcare provider agreed to pay $4 million in 2018, and its owners and executives – including a private equity firm – this year agreed to pay an additional $25 million to resolve overcharging claims arising from the submission of bills for services provided by unlicensed, unqualified, and improperly supervised staff members in violation of MassHealth regulations.  The recovery is the largest government healthcare fraud settlement involving private equity firm oversight or operation of a healthcare provider, and the largest Medicaid fraud settlement for Massachusetts.
  7. Glenn O. Hawbaker, Inc. – Pennsylvania — $20 million. In this criminal matter, general contractor Glenn O. Hawbaker, Inc. pleaded guilty to stealing employee wages under Pennsylvania’s Prevailing Wage Act and agreed to pay more than $20 million in back wages to over a thousand Pennsylvania workers.  Hawbaker received an estimated $1.7 billion on its contracts with Pennsylvania between 2003 and 2018.  Those publicly-funded contracts were governed by the Pennsylvania Prevailing Wage Act and Davis-Bacon Act, which require contractors working on projects that receive state or federal funding to pay the same wage rates.  While contractors are permitted to satisfy a portion of the required wage through provision of benefits such as health care and retirement contributions to employees, Hawbaker directed funds it claimed for these benefits to retirement accounts for all Hawbaker employees – including the owners and executives and to subsidize the cost of the self-funded health insurance plan that covered all employees.
  8. Bitfinex and Tether – New York — $18.5 million. New York again lead the way in financial enforcement with these February, 2021 settlements with cryptocurrency trading platform Bitfinex and crypto issuer Tether Holdings.  The state investigated Bitfinex for its mishandling of customer deposits and withdrawals, and Tether for its false representations that each of its stablecoins was backed one-to-one by U.S. dollars in reserve when, in fact, they were not.  Later in the year, the CFTC entered into its own settlements, recovering $41 million from Tether and $1.5 million from Bitfinex.  Notably, CFTC whistleblowers may be eligible for awards based on recoveries by other enforcement authorities in related actions.
  9. General Motors – California — $5.75 million. To resolve claims that it failed to timely disclose known safety issues related to defective ignition switches in its vehicles, GM forfeited $900 million to settle criminal charges in 2015, and paid $120 million in a 2017 multistate settlement.  This year, GM settled California’s claims that the company made false and misleading statements to investors, including the state’s largest pension system, regarding the costs the company would incur due to its ignition switch problems.  These statements and omissions artificially inflated GM’s stock price, causing the California Public Employees’ Retirement System (CalPERS) to lose millions of dollars.
  10. Artichoke Joe’s Casino – California — $5.3 million. California’s recovery here offers another illustration of the overlap between state and federal enforcement – in this case, enforcement of anti-money laundering rules by FinCEN.  In 2018, Artichoke Joe’s admitted violation of the Bank Secrecy Act’s program and reporting requirements, and paid $5 million to resolve FinCEN claims.  However, California alleged that the casino failed to timely or accurately report that FinCEN proceeding to the state in violation of its obligations under the California Gambling Control Act.

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Annual Whistleblower Insider Top Ten Lists

Every January, Whistleblower Insider looks back at the significant government enforcement actions of the past year. Our Top Ten lists highlight the biggest recoveries and significant enforcement efforts by different government actors in cases of interest to whistleblowers.
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