The SEC has announced that Goodyear Tire and Rubber Company has agreed to pay $16 million to settle allegations that the company violated the Foreign Corrupt Practices Act (“FCPA”). The allegations against Goodyear involve alleged cash bribes paid over the course of four years to government officials, government-owned entities, and employees of private companies in Angola and Kenya to boost tire sales. These payments were allegedly made through Goodyear’s subsidiaries – Trentyre and Treadsetters – in those countries. By way of example, the general manager and finance director at Treadsetters allegedly approved payments for fake promotional products and directed their finance assistant to write checks out to cash. Those funds were then alleged to have been used to line the pockets of officials and business leaders in Kenya.
Although $16 million is a lot of money for anyone to pay to the government, it is just a drop in the bucket for a company as large as Goodyear. According to Goodyear’s 10-K for the year ending December 31, 2014, the company’s net annual income was roughly $2.5 Billion. This settlement represents sixth tenths of one percent of the company’s annual income. The SEC has designated approximately $14 million of the settlement proceeds as disgorgement of unlawful proceeds. The remaining $2 million accounts for prejudgment interest. No fine was imposed. Goodyear was not required to admit any liability in accepting this settlement offer. This counters the current trend at the SEC. Chair Mary Jo White has publicly stated her position of increasing the Commission’s requirement of admissions of liability in settlements.
So how, you might ask, did Goodyear obtain such a favorable result? The answer is self-reporting and cooperation. This investigation began with a call to Goodyear’s compliance tip line. The company’s investigation of that tip led to prompt self-disclosure to the Commission.
This settlement teaches companies around the globe, and their counsel here in the United States, that the initial reaction and subsequent response to discovery of FCPA violations are critical. Once the company’s compliance program identifies a potential issue, it is of paramount importance to engage knowledgeable counsel, investigate immediately, self-report when possible, and cooperate when appropriate.
Posted On Tuesday, February 17, 2015
In U.S. v. Babaria, 2014 WL 7399043, the Third Circuit affirmed the sentence imposed on a medical director and manager of a Medicare and Medicaid provider convicted for his role in a kickback scheme. The Third Circuit upheld the two-level upward adjustment in offense level because the defendant abused a position of trust.
The defendant, Dr. Babaria, was a licensed radiologist and the medical director and manager of Orange Community MRI, LLC, an authorized Medicare and Medicaid provider. In 2012, Dr. Babaria pled guilty to one count of making illegal payments in violation of the federal anti-kickback statute, 42 U.S.C. §1320a-7b(b)(2)(A). Dr. Babaria paid physicians for referring patients to his clinic for diagnostic testing, for which he then billed Medicare and Medicaid. He received the kickbacks while at the same time certifying, on behalf of the clinic, that there were none. Dr. Babaria received over $2 million in payments from Medicare and Medicaid for testing that was directly traceable to the kickback scheme. Despite his participation in the fraud, there was no evidence that Dr. Babaria falsified patient records, billed for services that were not medically necessary or otherwise compromised patient care.
At sentencing, a pretrial report recommended that Dr. Babaria receive a two-level adjustment for abuse of a position of trust and a four-level adjustment for an aggravating role in the scheme pursuant to § 3B1.1(a) of the U.S. Sentencing Guidelines, resulting in a recommended sentence of 70 to 87 months in prison. Dr. Babaria objected to the upward adjustment as unwarranted, arguing that the correct sentence should be 37 to 46 months. The United States District Court for the District of New Jersey disagreed and applied both upward adjustments, but also granted a downward variance that resulted in a prison sentence of 46 months, a fine of $25,000, and a three-year term of supervised release. Dr. Babaria was also ordered to forfeit the money that had been paid to the clinic by Medicare and Medicaid. Dr. Babaria appealed the upward adjustments, arguing that he neither occupied nor abused a position of public or private trust.
Acknowledging that it had never before addressed the application of this sentence adjustment in the context of a Medicare or Medicaid kickback scheme, the Third Circuit reasoned that the defendant’s certification to Medicare of compliance with the anti-kickback statute, when coupled with his position as medical director and manager of the facility, justified the increased sentence. Holding that Dr. Babaria occupied a position of trust vis-à-vis Medicare and Medicaid as the medical director and manager of the clinic, the Court explained that Dr. Babaria’s position was unique in that it allowed him to both commit and conceal the fraud. As an authorizing official, Dr. Babaria’s actions were not subject to supervision. Thus, because Dr. Babaria utilized his position to orchestrate the payment of kickbacks and to evade detection, he was an “insider who abused his position, not merely an individual who took advantage of an available opportunity.”
The Third Circuit went on to explain that the district court properly considered Dr. Babaria’s medical license in its abuse of trust analysis, even though he did not need to be a licensed radiologist in order for the clinic to become an authorized Medicare and Medicaid provider. The Court explained there was a likelihood his professional training and license contributed to his ability to obtain his position and to supervise the clinic’s activities as they related to Medicare and Medicaid. The Court also upheld, with little analysis, the district court’s application of the four-level upward adjustment for playing an aggravating role in perpetuating the kickback scheme.
With this decision, the Third Circuit has now openly approved abuse of trust upward enhancements in health care kickback criminal matters. This is significant because it increases sentencing exposure for physicians convicted of Medicare and Medicaid fraud.
