White Collar Criminal Defense Group

Second Circuit Finds Army’s Search & Retention Of Accountant’s Files Unreasonable

This week, in U.S. v. Ganias, the United States Court of Appeals for the Second Circuit addressed whether “the Fourth Amendment permits officials executing a warrant for the seizure of particular data on a computer to seize and indefinitely retain every file on the computer for use in future criminal investigations.”

Ganias, the defendant and a former IRS employee, operated a tax and accounting service in Connecticut that catered to individuals and small businesses. Amongst his clients was an owner of two businesses that contracted with the United States Army to provide maintenance and security to a vacant Army facility. Sometime in August 2003, the Army received a tip from a confidential informant that Ganias’ client was stealing copper wire from the facility and billing the Army for work performed at another site. The informant told the Army that evidence of the theft and fraud would be found in Ganias’ office. Based upon this information, the Army obtained a warrant to seize all of Ganias’ files relating to the specific client. The Army, however, made forensic hard copies of Ganias’ computers, as opposed to seizing only the client’s files, due to the “practical convenience” of copying the entire system rather than piecing through the client’s files at Ganias’ office. The Army’s seizure included files unrelated to the client and included Ganias’ personal financial records. The Army assured Ganias that their search was unrelated to his finances and the system would be purged upon the conclusion of their inquiry into the client. Once the investigation began, however, the Army learned of inconsistencies in Ganias’ tax practices in relation to the client and it began to suspect that Ganias may have underreported his income. After retaining hard copies of Ganias’ personal records for 2 ½ years, the Army turned the files over to the IRS which requested and obtained a new warrant to specifically search Ganias’ records. Ultimately, a jury convicted Ganias of tax evasion. He appealed the decision, arguing that the government’s retention of his personal documents beyond the scope of the warrant and for more than 2 ½ years was unreasonable.

The court held that the unauthorized seizure and retention of Ganias’ documents was unreasonable and a violation of his Fourth Amendment rights. The court noted that the Government’s retention of Ganias’ personal computer records for 2 ½ years deprived him of exclusive control over those files for an unreasonable amount of time. Further, the combination of the government retaining Ganias’ files for an unreasonably long period of time and their retention of documents unrelated to the warrant constituted a meaningful interference with Ganias’ possessory rights. Finally, while not addressing the legality of the government’s decision to make forensic hard copies of Ganias’ entire computer, the court ruled that this matter of convenience did not provide an “independent basis” for retaining Ganias’ files “other than those specified in the warrant.”

11th Circuit Affirms Sentence And Fine In “Deplorable” Nursing Home Fraud

On June 19, in U.S. v. Houser, the United States Court of Appeals for the Eleventh Circuit affirmed a district court’s 240 month prison sentence and $7,000,000 restitution order to Medicare and Medicaid in a health care fraud case. Houser, the defendant, operated three Georgia nursing homes with a capacity of 404 residents. Approximately, 80% to 90% of the residents were Medicare or Medicaid patients. The court described the conditions within the homes as “barbaric” and “uncivilized.” Specifically, the homes suffered from a laundry list of structural problems, including: leaky roofs that caused damage to resident property and pools of stagnant water in bedrooms, lack of heating in the winter, and lack of air conditioning in the summer. Houser’s failure to properly fund the homes resulted in excessive problems within the homes, including: shortages of cleaning supplies that resulted in a strong odor of urine and feces, soiled linens in residents homes that went unwashed, accumulation of trash because of a failure to pay for trash removal services, and insufficient staffing due to a failure to promptly provide pay checks. Finally, Houser’s failure to properly fund the homes resulted in egregious medical failures for patients, including: lack of medications due to a failure to pay pharmacy bills, insufficient diaper supplies, insufficient laboratory services, and lack of food for residents. The conditions within the homes became so atrocious that staff began buying food and supplies with their personal assets in order to sustain the residents. The court calculated that the homes received approximately $32,914,304 from Medicare and Medicaid for the care of residents. Houser directed large portions of these payments to luxury homes, cars, and alimony payments. The government argued that the majority of the Medicare and Medicaid payments were delivered for services that Houser and his girlfriend, a director within the nursing homes, never delivered or substantially failed to deliver, and thus constituted a conspiracy to commit health care fraud.

            The court noted that a defendant commits health care fraud when they knowingly and willingly execute a scheme to defraud a health care benefit program in connection with the delivery of or payment for health care benefits, items, or services. Under federal law, nursing homes are required to provide services and activities to attain or maintain the highest practicable physical, mental and psychological well-being of residents. Further, federal law requires that nursing homes develop a plan of care which describes the medical, nursing, and psychological needs of the resident and how such needs will be met. The court held that Houser’s operation of the nursing homes not only resulted in severely substandard delivery of services, but in many cases the sheer lack of any services. Therefore, the district court’s sentence was supported by the great weight of evidence and the restitution order accurately reflected the losses suffered by Medicare and Medicaid.