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Forensic News August 2016

FINANCIAL/ACCOUNTING FRAUD
Short-sellers smell blood as Japan Inc wounded by accounting scandals
Short-sellers who made their names and fortunes wiping billions off Chinese and Southeast Asian companies are setting their sights on Japan after a series of accounting scandals amplified concerns about weak corporate governance there. Until recently, corporate managers in Japan have enjoyed relatively limited scrutiny of their governance standards and accounting rigor, and a cozy tradition of cross-holdings between companies has relegated the status of minority shareholders and the importance of adequate disclosure. But as the government of Prime Minister Shinzo Abe has tried to clean up corporate culture and activist investors have begun to kick the tires of Japan Inc, short sellers are finding fertile ground for profit. On Tuesday, prominent U.S.-based short-seller Citron Research launched an attack on Japanese robotics company Cyberdyne, claiming it was “the most ridiculously priced stock in the world” and had misled retail investors over its technology assets. Cyberdyne, which closed down 7 percent on Tuesday, dismissed the report as an attempt to push its stock price down. It is not known whether Citron holds a short position in Cyberdyne. It is the second attack on a Japanese company in less than a month and the sixth since December 2015, when Well Investments Research challenged trading firm Marubeni, the first such campaign in Japan tracked by Activist Shorts Research. According to Activist Shorts, the six Japan campaigns, half of them directed at Cyberdyne, have generated average losses of 23 percent, which means profit for short-sellers, who sell borrowed stocks and buy them back more cheaply. It said that is among the top half of the 46 activist short-sellers to have launched campaigns in the past year and is more than double the year-to-date return of Asia’s main benchmark .MIAPJ0000PUS. The phenomenon of short-sell attacks took hold between 2009 and 2011, with investment and research firms such as Muddy Waters Research and Alfred Little attracting international attention for their campaigns against overseas-listed Chinese companies including Sino-Forest and Silvercorp.
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Comcast’s Golf Channel beats appeal over Allen Stanford fraud
A federal appeals court on Monday said Comcast Corp’s Golf Channel need not repay $5.9 million it had received from convicted swindler Allen Stanford in exchange for services aimed at furthering his multibillion-dollar Ponzi scheme. The 5th U.S. Circuit Court of Appeals in New Orleans said the payment was not fraudulent because reasonable creditors would have deemed the network’s sponsorship of the men’s Stanford St Jude Championship in Memphis, Tennessee, to have had sufficient “value.” Ralph Janvey, a court-appointed receiver for Stanford’s companies, had argued that the sponsorship, in which Golf Channel aired hundreds of commercials for Stanford, had no real value because they furthered the Ponzi scheme. But the appeals court disagreed, saying that Golf Channel could have sold the air time to another buyer at market rates. The appeals court had ruled for Janvey in March 2015, but later threw its ruling out so the Texas Supreme Court could explain what “value” meant under a state law governing fraudulent transactions. Monday’s decision restored a November 2013 ruling for Golf Channel by a lower court judge. Janvey is trying to recoup as much money as possible for Stanford’s victims. A lawyer for Janvey had no immediate comment. Stanford was convicted in March 2012 for running what prosecutors called a $7.2 billion Ponzi scheme centered on fraudulent certificates of deposit from his Antigua-based bank. He is serving a 110-year prison term.
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London police arrest Sage employee on suspicion of fraud at Heathrow
City of London police arrested a Sage Group employee on Wednesday at Heathrow Airport on suspicion of conspiring to defraud the British software maker, police said in a statement. The 32-year-old woman was arrested on suspicion of conspiracy to defraud in connection with an alleged fraud against the company. She was subsequently released on bail, the police said. Earlier this week, the Newcastle-based company, one of Britain’s biggest tech firms, said an internal login had been used to gain unauthorized access to some of the personal employee data of around 280 of its British customers. Sage supplies accounting and other financial software to 3 million small and medium-sized business customers globally. Its payroll-processing software is used by more than half of Britain’s companies, analysts estimate. Sage is working to ascertain whether any data has actually been stolen, a source at the company said on Monday. Following the arrest, Sage declined to comment other than to reiterate it was cooperating with the police investigation. The police statement said she was a current Sage employee but provided no further details.
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How a Ukrainian reform backfired, opening a new door to fraud
The goal was to make Ukraine more friendly for investors by reducing red tape. But reforms that loosened the rules for registering ownership of assets have left companies prey to fraudsters who can swipe entire businesses at a pen stroke. The new laws, which took effect in December, give thousands of private notaries new powers to record changes of ownership of assets at registries around the country. According to the government, on at least 250 occasions so far, fraudsters have taken advantage of the changes to seize control of shopping malls, building sites or other businesses, sometimes emptying bank accounts before they are discovered. The fraud outbreak shows how steps taken by Ukraine’s pro-Western government to open the country up to investment can instead backfire, providing more opportunities for criminals. The government says it is planning new legislation to tackle the problem, but those changes are months away, and meanwhile the authorities have few tools to stop the thefts. Something was wrong when an accountant for Ukrainian real estate developer Stolitsa Group tried to log on to the company’s online filing system one Monday in July. The login credentials didn’t work. But that turned out to be just the first hint of a much bigger problem. The company, it transpired, was no longer the owner of a $50 million subsidiary running one of its main projects. A few days earlier, someone had walked into a registrar’s office in Baryshivka, a village of about 10,000 people, 74 km (45 miles) outside the capital. The man presented forged documents, and re-registered the title to the subsidiary. According the register, the new owner was now a 21-year-old living in territory controlled by separatists in eastern Ukraine, who had bought one of the highest-profile real estate projects in Ukraine for $400. Stolitsa says the whole transaction was fake. “It happened out of the blue and we rushed to Baryshivka to that registry office,” Valentyna Radionova, a senior manager at Stolitsa, told Reuters.
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Ex-Comverse CEO returning to U.S. to plead guilty in stock fraud
Ending a decade on the run, the former chief executive officer of Comverse Technology Inc who fled to Africa to avoid a fraud prosecution over a stock options scandal is returning to the United States to plead guilty. Jacob “Kobi” Alexander, 64, will admit to one count of backdating stock options in the federal court in Brooklyn on Wednesday, his lawyer, Benjamin Brafman, said in an e-mail on Monday. The Israeli-born Alexander has been considered a fugitive by the U.S. government, and lived in Namibia since his September 2006 arrest there, following a global manhunt. After being freed on bail the following month, Alexander had been fighting extradition to the United States, where he faced 35 counts including securities fraud, money laundering and obstruction. But Alexander now “wants to accept responsibility for his conduct” after reaching a “favorable plea agreement,” Brafman said. Comverse, a Woodbury, New York, software developer, was bought out in 2013 by its former unit, Verint Systems Inc. The U.S. Department of Justice declined to comment on the plea, which was reported earlier by CNBC television. Alexander’s case is one of the last remaining major criminal cases stemming from the dot-com bubble, and from federal probes into stock options backdating at more than 200 companies. In backdating, a company retroactively grants stock options on dates when stock prices are lower, making them more valuable. Concealing the practice through improper accounting is illegal, and can inflate earnings. Alexander and Comverse’s general counsel William Sorin and finance chief David Kreinberg were charged in what prosecutors said was a “fraudulent scheme” to reap millions of dollars from backdating between 1998 and 2001.
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Bosch worked ‘hand-in-glove’ with VW in emissions fraud: lawyers
German auto supplier Robert Bosch GmbH was a “knowing and active participant” in a decade-long scheme by Volkswagen AG to evade U.S. emissions laws, according to lawyers for U.S. owners of polluting VW diesel vehicles. In a court filing late on Tuesday in U.S. District Court in San Francisco, the lawyers cited confidential documents turned over by the German automaker to plaintiffs attorneys in making the new allegations against the auto supplier. Volkswagen declined to comment on the filing, except to say that it had no effect on its multibillion-dollar settlement of a civil complaint over the diesel scandal. The filing was made a day after sources briefed on the matter said the automaker has held preliminary talks with the U.S. Justice Department to settle a criminal probe into the emissions cheating case. Most of the allegations involving Bosch remain under seal because the documents have been designated as confidential by VW, the plaintiffs’ lawyers said in the court filing. A Bosch spokeswoman said the company took the allegations seriously and is cooperating in several investigations, but declined to comment further. The documents include records and communications between Bosch, VW and U.S. regulators. One 2011 e-mail to the California Air Resources Board, among other communications, demonstrates “Bosch’s deep understanding of what regulators allowed and would not allow, and what Bosch did to help VW obtain approval,” the filing said. “Bosch played a crucial role in the fraudulent enterprise and profited handsomely from it,” the court papers say. Bosch has not been charged with any wrongdoing. But German prosecutors said in December that they were investigating whether staff at the Stuttgart-based company were involved in the rigging of emissions tests by VW. Bosch makes an engine control unit, often referred to as the “brain” of the engine, used by several top automakers including VW. That system controls a vehicle’s acceleration and power and is extensively customized to give each car model its own unique feel.
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Penny-Stock Scammer Pleads Guilty to Fraud Hatched in Prison
A penny-stock swindler pleaded guilty to a $15 million scam prosecutors say he launched while still serving a 10-year prison sentence on an earlier fraud. Edward Durante, 64, pleaded guilty Tuesday to a plot in which he used a network of unwitting brokers and investment advisers to sell shares in an online sweepstakes company called VGTel Inc. More than 100 victims were told that the shares, which Durante secretly controlled, would rise from $1 to as high as $50. The investors believed they were buying stock from the issuer, rather than from entities set up by Durante. Durante began the scheme in 2009, while he was still in prison for the earlier scam, Assistant U.S. Attorney Andrea Griswold told U.S. Magistrate Judge Andrew Peck in a hearing in Manhattan federal court. The new fraud ran until March 2015. Durante, gray-haired and dressed in blue prison fatigues, pleaded guilty to conspiracy, securities fraud, money laundering and perjury. He had been extradited from Germany to the U.S. in 2015. Under an agreement with prosecutors, Durante faces more than 24 years in prison under non-binding federal sentencing guidelines. He also agreed to forfeit more than $15 million. Durante was convicted in 2001 of a market manipulation scheme and ordered to pay back $39 million.
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FOREIGN CORRUPT PRACTICES ACT (FCPA)
FBI probes possible U.S. ties to corruption by former Ukraine president: CNN
The FBI and U.S. Justice Department are investigating possible U.S. ties to alleged corruption involving the former president of Ukraine, including the work of firms headed by political operatives Paul Manafort and Tony Podesta, CNN reported on Friday, citing multiple U.S. law enforcement officials. The broad-based investigation was looking into whether U.S. companies and the financial system were used to enable corruption by the party of former pro-Russian Ukrainian president Viktor Yanukovych, CNN said. A person who answered a telephone number for Manafort said Manafort was not available for comment. The person, who said he was an associate of Manafort and who gave his name only as David, referred queries to a lawyer in Washington, who did not immediately respond to a phone call and an e-mail. In response to a report in the New York Times on Monday, Manafort denied any impropriety in a statement. “I have never received a single ‘off-the-books cash payment’ as falsely ‘reported’ by The New York Times, nor have I ever done work for the governments of Ukraine or Russia,” he said. The New York Times reported that he had received cash payments worth more than $12 million over five years that were itemized on secret ledgers belonging to Yanukovich’s Party of Regions. Manafort, who resigned as chairman of Republican presidential nominee Donald Trump’s campaign on Friday, had not been the focus of the probe, CNN said, citing the officials. The probe was looking at the work of other firms linked to the former Ukrainian government, including the Podesta Group, a lobbying and public relations company headed by Tony Podesta, whose brother John Podesta is chairman of the campaign to elect Democratic Party presidential nominee Hillary Clinton. Manafort’s attorney Richard Hibey did not immediately respond to a request for comment.
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New Zealand police strike deal with Chinese corruption suspect
New Zealand police said on Tuesday they had reached a deal with a Chinese-born businessman for him to pay a record NZ$42 million ($31.3 million) fine to settle legal action following an investigation with China into money laundering. William Yan, a New Zealand citizen, is on China’s most-wanted list of international fugitives, accused of embezzlement. New Zealand courts seized his assets two years ago while police investigated whether they were the proceeds of money laundering in China. The settlement announced on Tuesday means that Yan avoids any criminal or civil responsibility, New Zealand police said in a statement. Detective Inspector Paul Hampton, manager of NZ Police’s asset recovery and financial group crime, said the proceeds of the fine would be shared between the New Zealand and Chinese governments. China’s Foreign Ministry said Chinese and New Zealand police had worked closely on the case, but it did not say if China would seek Yan’s extradition. “Going forward, Chinese police will continue to work with New Zealand to advance relevant enforcement cooperation on the Yan case,” the ministry said in an e-mailed statement. The cooperation between the two countries comes as China seeks to drum up Western help in a campaign dubbed “Operation Fox Hunt” to track down corruption suspects who have fled overseas. China has been pushing for extradition treaties with various countries but many Western nations have been reluctant to help, not wanting to send people to a country where rights groups say mistreatment of suspects is a concern.
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U.K.’s Airbus Inquiry Seeks to Shed Light on Use of Middlemen
A criminal investigation into Airbus Group SE’s practices in selling planes and arranging financing overseas will seek to shed light on the use of third parties who are often critical in closing deals. The inquiry, which the U.K.’s Serious Fraud Office said it opened in July and Airbus disclosed Sunday, could run for years. While Airbus may not feel the short-term impact, given that it has dropped the questionable middlemen and expects suspended financing guarantees to be restored, an unfavorable outcome could result in fines and damage the company’s reputation. Scrutiny of the use of third parties comes as Airbus and its rivals seek greater influence in emerging markets, which have taken over from the U.S. and Europe as drivers of growth in the commercial aircraft business. Airbus said in April that top management had identified questionable use of third parties and alerted the U.K. and other regulators, but the formal investigation brings the issue to a new, more serious level. “The news came as a shock, since the issue had been downplayed,” Kepler Cheuvreux analyst Christophe Menard said in a note to investors Monday. “It could turn out to be more serious than envisaged.” One focus of the SFO inquiry is Airbus’s failure to disclose its use of third parties to U.K. Export Finance, an agency that arranges credit guarantees for overseas sales. Airbus lost export credit in April after the plane maker informed authorities of inaccuracies in a number of applications. Government guarantees are expected to resume by year-end, Airbus Chief Executive Officer Tom Enders has said. Airbus shares fell to their lowest since July 11 and traded down 0.7 percent to 50.64 euros at 11:53 a.m. in Paris.
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LITIGATION MATTERS
Pfizer in $486 million settlement of Celebrex, Bextra litigation
Pfizer Inc (PFE.N) on Tuesday said it has reached a $486 million settlement of litigation accusing it of causing big losses for shareholders by concealing safety risks associated with its Celebrex and Bextra pain-relieving drugs. The accord is subject to negotiation of a final settlement agreement with the plaintiff shareholders, and would end more than 11 years of litigation against the drug maker and several officials, including former Chief Executive Henry McKinnell. It was reached nearly seven years after Pfizer agreed in September 2009 to pay $2.3 billion to settle a U.S. government probe into the marketing of Bextra and other drugs. Pfizer said it has set aside reserves to cover the entire shareholder settlement, which requires court approval. All defendants denied wrongdoing. “This resolution reflects a desire by the company to avoid the distraction of continued litigation and focus on the needs of patients and prescribers,” Pfizer said in a statement. Gregory Joseph, a lawyer for shareholders including the Teachers’ Retirement System of Louisiana, declined to comment. The lawsuit covered shareholders who bought Pfizer stock between October 31, 2000 and October 19, 2005. Pfizer’s market value fell by roughly $70 billion from early October 2004 until the day after the class period ended. Shareholders accused Pfizer of having concealed tests that began in 1998 and which suggested health risks associated with Celebrex and Bextra. Safety concerns mounted in late 2004 when rival Merck & Co withdrew its Vioxx drug because of associated cardiovascular risks. Pfizer pulled Bextra from the U.S. market the following April.
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Harley Settles Screamin’ Eagle Tuner Suit Without Conceding
Harley-Davidson Inc. will pay $15 million to end a U.S. lawsuit accusing the iconic motorcycle maker of selling performance-enhancing engine tuners the government said were illegal emission-control defeat devices. In a settlement announced Thursday, Harley also said it would stop selling and buy back and destroy its “Screamin’ Eagle” Pro Super Tuners. But Harley disputed the government’s claim that by selling its tuner through its dealer network, it enabled dealers and customers to tamper with motorcycles used on public roads. The Milwaukee-based company said they were meant for off-road and closed course competition, and that it did nothing wrong by selling them. Still, the company known by its ticker symbol HOG sold almost 325,000 of the Pro Super Tuners from 2008 to 2015, and about 15,000 electronic fuel injection race tuners. They caused motorcycles to emit more pollution than the company had certified to the U.S. Environmental Protection Agency, according to a civil complaint filed by the Justice Department. “Given Harley-Davidson’s prominence in the industry, this is a very significant step toward our goal of stopping the sale of illegal aftermarket defeat devices that cause harmful pollution on our roads and in our communities,” said Assistant Attorney General John C. Cruden, in a statement.
The allegations of wrongdoing trail Volkswagen AG’s nearly $15 billion settlement of civil litigation after the German automaker was found to have rigged diesel engine vehicles to appear compliant to emissions testing equipment even as they emitted substantially more pollutants than allowed under ordinary driving circumstances. “What the government is doing is they’re catching up to what the industry is doing and they’re saying that ‘We’re not going to tolerate it anymore. We’re going to hit you with big penalties,’” said Clarence Ditlow, president of the Center of Auto Safety Inc. “These tuners where you can increase the performance of a motorcycle are very commonplace.”
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Citigroup, AT&T end litigation over ‘thanks’
Citigroup Inc and AT&T Inc have ended a court battle over whether the “AT&T thanks” customer loyalty program infringed Citigroup’s trademark in the phrase “thankyou.” According to a Monday filing with a Manhattan federal court, the companies have dropped claims against each other with prejudice, meaning they cannot be brought again. Citigroup sued AT&T in June, calling “AT&T thanks” too similar to the “thankyou” that the New York-based bank had used since 2004 on its own customer programs. AT&T countered that Citigroup has no monopoly over the word “thanks” and sought a court order to that effect. The resolution may help preserve a relationship between Citigroup and AT&T dating to 1998 that includes 1.7 million U.S. customers with co-branded credit cards. “We have decided not to pursue this matter any further and look forward to continuing to work with AT&T,” Citigroup spokeswoman Jennifer Bombardier said in a statement. AT&T spokesman Fletcher Cook said: “We consider the matter closed.” The case was dropped 11 days after U.S. District Judge Katherine Forrest in Manhattan rejected Citigroup’s request for a preliminary injunction against “AT&T thanks.” She said Citigroup did not show that “AT&T thanks” would necessarily confuse customers or cause it irreparable harm, though “AT&T thanks” and “thankyou” share some letters and pronunciation, and both “convey a message of gratitude.”
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CHINA MARKET
As China e-commerce booms, private equity sees room for growth in storage space
When U.S. private equity heavyweight Warburg Pincus [WP.UL] started looking at China’s logistics sector in late 2009, there were more modern warehouses in Boston than in the whole of the world’s most populous country. But as Chinese consumers embarked on an online shopping spree, demand has soared from appliance makers, express delivery firms and e-commerce companies such as Alibaba Group Holding Ltd and JD.com Inc, far outpacing supply and prompting a parallel binge in investment in warehouses and logistics businesses. Deep-pocket investors including Carlyle Group LP, Canada Pension Plan Investment Board (CPPIB) and Warburg Pincus have splashed $12 billion on the sector in China since 2013, says real estate consultancy Jones Lang LaSalle. “The thinking was even if it didn’t necessarily scale to the size we were anticipating, we had a good sense that while Boston is a pretty decent size city in the U.S., China should have far more modern warehousing space over the longer term,” said Jeffrey Perlman, who heads Southeast Asia at Warburg Pincus and also focuses on real estate investments across Asia Pacific. “We were taking that directional bet that, with this transformative shift from a manufacturing-based economy to a service-, consumption-based economy, ultimately you need to store the goods somewhere.” Although China’s economy expanded in the second quarter at the slowest pace since the global financial crisis of 2008-09, online shopping revenues have soared and are expected to double to 7.5 trillion yuan ($1.13 trillion) in 2018 from last year, consumer and internet consultancy iResearch estimates. Online retail as a percentage of total retail in China has grown steadily to 12.6 percent, and is forecast to reach 17 percent in 2018, according to iResearch and China’s National Statistics Bureau. By comparison, U.S. e-commerce sales accounted for 8.1 percent of total sales in the second quarter of 2016, underscoring the fast adoption of online shopping in China, where consumers with rising incomes use smartphones to order everything from appliances and clothes to flowers and pizza. India, another emerging Asian giant with a burgeoning middle class, has seen a similar trend and is also attracting investment in warehouses.
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China’s $100 Billion Chip Supremacy Bid Unrealistic: Bain
China faces an uphill battle in its push to become the global leader in computer chips because of a lack of technological know-how and talent, according to an analysis by Bain & Co. China is one of the world’s largest consumers of semiconductor devices thanks to its manufacturing might, and is planning to spend more than $100 billion to become also a premier supplier to the planet. The global consultancy estimates that by 2020, almost 55 percent of the world’s memory, logic and analog chips will flow to or through the country. But the vast majority of the microchips that act as the brains of products like Apple Inc.’s iPhone are largely imported from companies like Intel Corp. and Samsung Electronics Co. The government in 2014 moved to change this with plans to invest more than $100 billion and become a leading global player. It’s also driven consolidation among domestic suppliers to maximize its investments, including the $2.8 billion merger of Tsinghua Unigroup Ltd. and Wuhan Xinxin Semiconductor Manufacturing Corp. announced last month. China’s effort to build a world-leading semiconductor industry is part of a broader effort to wean itself off foreign technology. But financial investment will not be enough to buy leadership of the semiconductor sector, which is worth around $1 trillion according to Singapore-based Bain partner Kevin Meehan. The country currently makes just 15 percent of the semiconductors it consumes, Bain said in a report. And by 2020, the consultancy expects Chinese-based plants to produce just 7 percent of the world’s microchips, barely up from current levels. “China is coming at it in a pretty smart and intelligent way,” he said. “But I don’t see a path for them to own leading-edge processor technology and that is the foundation of Intel, the foundation of Samsung’s success.”
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China Plans to Open Up More Industries to Private Investors
China will open sectors including oil and gas drilling to private capital to counter record-low investment growth by non-state firms. “Political barriers” for private investment will be removed to offer a fair playing field and encourage non-state companies to take part in 165 projects outlined in the country’s 13th five-year plan, said Hu Zucai, vice chairman of China’s National Development and Reform Commission, the government’s top economic planning body. The remarks follow a government plan announced Monday to lower corporate costs and raise profitability. China’s leaders are seeking to rev up faltering fixed-asset investment growth by the private sector to keep this year’s economic expansion target of at least 6.5 percent in sight. “The government needs money, because they have to restructure a huge state sector,” said Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis SA in Hong Kong. “But it’s still not clear where they will give up control.” For strategic sectors such as telecommunications, energy and nuclear power, Herrero said there might be some private investment, but not “deep involvement.” Hu reiterated the government’s pledge to ease burdens on companies and create a fair investment environment for private investors. “The most important thing is to grant maximum market access, and the State Council has made it clear it will roll out a negative list regarding market access,” he said. A negative list would specify which areas are off limits, leaving all others theoretically open to private firms. “We need to generate more channels for private investment to take part in major projects more swiftly and smoothly,” Hu said. “There must be a clear and predictable investment environment for private investors.”
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HEALTHCARE INDUSTRY
New York City hospitals settle Medicaid repayment fraud charges
Three hospitals in New York’s Mount Sinai Health System will pay $2.95 million to settle Medicaid fraud charges for taking two years to repay more than $844,000 of improper billings that had been flagged by a whistleblower, authorities said on Wednesday. The accord resolves claims that Mount Sinai Beth Israel, Mount Sinai St. Luke’s, Mount Sinai Roosevelt and their former Continuum Health Partners venture violated federal and state False Claims Acts by failing to repay the funds within 60 days, resulting in “reverse false claims.” U.S. Attorney Preet Bharara in Manhattan said the case arose after Continuum had been alerted by Robert Kane, a technical director for operations, to a software glitch that caused the erroneous billing of 444 claims to Medicaid in 2009 and 2010. But rather than make repayments, Continuum fired Kane on February 8, 2011, four days after he had pushed senior management to reveal the severity of the problem, court papers show. The repayments were not completed until March 2013. The hospitals, also known as Beth Israel Medical Center and St. Luke’s Roosevelt Hospital Center, accepted responsibility for their conduct, the court papers show. In a statement, Mount Sinai Health System said its hospitals are committed to a vigorous compliance program, and that Continuum acted in good faith in handling repayments. New York State will receive $1.77 million from the settlement and the United States will receive $1.18 million. Kane will be paid $590,000 from the settlement, or 20 percent of the total, according to court records and New York Attorney General Eric Schneiderman.
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U.S. health agency weighs rules on outside payments for Obamacare
A U.S. government health agency on Thursday said that it was considering new rules to prevent healthcare providers or related groups from steering patients into Obamacare individual insurance plans instead of Medicare or Medicaid in order to receive higher payments for medical services. The Centers for Medicare & Medicaid Services on Thursday said it is seeking public comment and considering rules including prohibiting or limiting premium payments or cost-sharing for the individual marketplace plans, monetary penalties and limits on such payments. It also sent a letter to dialysis centers that are part of Medicare informing them of these plans. “It is improper to influence people away from Medicare or Medicaid coverage for the purpose of financial gain,” Shantanu Agrawal, CMS Deputy Administrator and Director of the Center for Program Integrity, said in a statement. Three of the largest U.S. health insurers have raised the issue of third-party payments in recent months, including UnitedHealth Group Inc, Anthem Inc and Aetna Inc. UnitedHealth and Aetna have decided in 2017 to largely exit the government-run online marketplaces that sell these subsidized plans created under President Barack Obama’s national healthcare reform law. Under Obamacare, individual plans offered by the insurers generally pay doctors and other medical groups more than Medicare and Medicaid for their medical services and may cover different drugs and procedures.
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SEC REGULATORY ACTIONS
Company Punished for Severance Agreements That Removed Financial Incentives for Whistleblowing
The Securities and Exchange Commission today announced that a California-based health insurance provider has agreed to pay a $340,000 penalty for illegally using severance agreements requiring outgoing employees to waive their ability to obtain monetary awards from the SEC’s whistleblower program. According to the SEC’s order, Health Net Inc. violated federal securities laws by taking away from departing employees who wanted to receive severance payments and other post-employment benefits the ability to file applications for SEC whistleblower awards. Health Net added the provision in August 2011 after the SEC adopted a rule to prohibit any action to impede someone from communicating with the SEC about possible securities law violations. Health Net removed the SEC-specific language from its severance agreements in June 2013, but retained restrictive language that removed the financial incentive for reporting information until finally amending the agreements to strike all such restrictive language last year. “Financial incentives in the form of whistleblower awards, as Congress recognized, are integral to promoting whistleblowing to the Commission,” said Antonia Chion, Associate Director of the SEC Enforcement Division. “Health Net used its severance agreements with departing employees to strip away those financial incentives, directly targeting the Commission’s whistleblower program.” Health Net consented to the SEC’s cease-and-desist order without admitting or denying the findings. The company agreed to make reasonable efforts to inform former employees who signed the severance agreements from August 12, 2011, to October 22, 2015, that Health Net does not prohibit former employees from seeking and obtaining a whistleblower award from the SEC under Section 21F of the Securities Exchange Act.
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SEC Charges Former Professional Football Player With Running $10 Million Fraud
The Securities and Exchange Commission today charged Merrill Robertson Jr., a former player for the Philadelphia Eagles, with defrauding investors, including coaches he knew from his time playing football for the Fork Union Military Academy and the University of Virginia. The SEC’s complaint, filed in federal court in Richmond, Virginia, charges Robertson, Sherman C. Vaughn Jr., and the company they co-owned, Cavalier Union Investments LLC. According to the complaint, the defendants promised to invest in diversified holdings but diverted nearly $6 million of the more than $10 million they raised from investors to pay for personal expenses and used other funds to repay earlier investors. Robertson and Vaughn, both of Chesterfield, Virginia, are alleged to have lied about the unregistered debt securities they sold, saying they would yield as much as 20 percent “while providing safety and security for our investors.” According to the complaint, the defendants claimed that Cavalier had investment funds operated by experienced investment advisers when it did not have any funds or investment advisers and was functionally insolvent shortly after it was formed. The defendants allegedly hid this fact from potential investors and relied on cash from new investors to stay afloat. The complaint further alleges that Cavalier’s only investments were in restaurants that had all failed by 2014, something the defendants never disclosed as they continued soliciting and accepting investors’ money. The scheme allegedly targeted seniors and coaches, donors, alumni, and employees of schools Robertson had attended. “Our complaint alleges that Robertson and Vaughn preyed on elderly victims and others who placed their trust in these individuals, only to have their savings stolen,” said Sharon B. Binger, Director of the SEC’s Philadelphia Regional Office. “We will continue to aggressively pursue fraudsters who exploit their relationship of trust with victims and promise returns that appear to be too good to be true.”
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SEC Charges Cardiologist With Insider Trading on Confidential Drug Trial Developments
The Securities and Exchange Commission today charged a cardiologist with insider trading on confidential developments as he worked on a clinical drug trial. The SEC alleges that Dr. Edward Kosinski of Weston, Connecticut, traded in advance of two negative news announcements by Regado Biosciences, which was pursuing a drug called REG-1 to regulate clotting in patients undergoing coronary angioplasty. Kosinski, who served as principal investigator of the drug trial, got advance notice that patient enrollment in the trial was being suspended because patients had experienced severe allergic reactions. He allegedly sold all 40,000 shares of his Regado stock the following day to avoid approximately $160,000 in losses when the news became public and the stock price dropped. A month later, Kosinski received advance notice that enrollment would be permanently halted because a patient had died, and he profited through options trades by betting the stock price would drop again. Kosinski allegedly made more than $3,000 when he exercised the options after the company’s stock fell by 60 percent upon the negative news. “We allege that Dr. Kosinski illegally sold all of his stock in the company to avoid thousands of dollars in losses when the bad news came out,” said Joseph Sansone, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit. “Not content with avoiding heavy losses, Kosinski allegedly further enriched himself by placing options trades to profit when the company’s stock price dropped again on more bad news.” In a parallel case, the U.S. Attorney’s Office for the District of Connecticut today announced criminal charges against Kosinski. The SEC’s complaint filed in federal court in Connecticut charges Kosinski with violating antifraud provisions of the federal securities laws and related rules.
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