DOJ’s Emphasis of Individual Accountability – Where it Stands, and Where it Could be Headed

Posted On Wednesday, January 24, 2024
By: Scott A. Coffina

A recent article in Law360 sparked a vigorous conversation among members of Pietragallo’s white collar practice group about the current state of the U.S. Department of Justice’s (DOJ) evolving emphasis on individual prosecution. Our consensus is that the Justice Department is currently stressing individual accountability as it seeks to assure the business community that timely self-disclosure and meaningful cooperation will be rewarded with some type of leniency, if not non-prosecution altogether. 

The article that caught our attention was a thoughtful analysis of United States vs. Valle Boza, the prosecution of HealthSun Health Plans Inc.’s former director of Medicare risk adjustment analytics for entering false, more serious diagnosis codes for Medical Advantage participants, resulting in higher monthly payments to HealthSun for the anticipated costs of their care.  HealthSun, according to the DOJ, undertook “timely and appropriate remediation, including terminating employees who were involved in the misconduct, reporting and correcting the false and fraudulent information submitted to [the U.S. Department of Health and Human Services’ Centers for Medicare and Medicaid Services], and substantially improving their compliance program and internal controls” and thus will not be prosecuted for the $53 million fraud scheme.

Recent DOJ Policy Shifts

Over the past twenty-five years, the DOJ occasionally has restated its Principles of Corporate Prosecution, formally expressed through memoranda issued by the Deputy Attorney General. These memos set forth the factors the DOJ will consider in giving companies consideration in prosecution decisions (or non-prosecution decisions) for cooperating with an investigation into corporate wrongdoing. 

Likely as a reaction to criticism the Department received over a paucity of individual prosecutions following the financial crisis of 2008, the DOJ under the Obama administration demanded that corporations seeking credit for cooperation turn over all relevant facts about all individuals involved in wrongdoing. 

The DOJ under the Trump administration t dialed that back a bit. In the “Rosenstein Memo,” the DOJ continued to emphasize individual accountability, but it no longer required corporations under investigation to disclose “all” information about “all” employees involved in order to receive any credit for cooperation.

The Current Enforcement Protocol

Under Attorney General Merrick Garland and Deputy Attorney General Lisa Monaco, the Department has returned to the more rigid demands of a complete turnover of information on all wrongdoing by all participants for corporations to receive any credit for cooperation, reflecting its emphasis on prosecuting individuals. For example, in September 2022, DAG Monaco wrote, “The Department’s first priority in corporate criminal matters is to hold accountable the individuals who commit and profit from corporate crime.”

In Valle Boza, the defendant and her co-conspirators allegedly obtained physicians’ login credentials and used them to enter false chronic conditions into the medical records of beneficiaries, as if entered by the physicians themselves. Their scheme allegedly caused HealthSun to submit to CMS tens of thousands of false and fraudulent diagnosis codes, which resulted in HealthSun being overpaid millions of dollars by the government.

The Valle Boza HealthSun case can be viewed as an example of the DOJ’s emphasis on the prosecution of individuals; a corporate employee is being prosecuted, while the entity fully cooperated to the government’s satisfaction, and will not be prosecuted. But one should not overread this as part of the renewed DOJ paradigm – the defendant and her co-conspirators’ alleged conduct was particularly egregious, and it is difficult to envision any company acting differently than HealthSun upon being made aware of such wrongdoing. If true, Valle Boza’s conduct would warrant individual prosecution under any regime.   

Still, the Justice Department’s current emphasis on individual prosecution is undeniable. Last June, for example, the DOJ bundled three unrelated schemes into one mega-announcement that it had charged 78 individual defendants with health care fraud. In one of the cases charged in this “coordinated . . . nationwide law enforcement action,” three executives of purported software and services companies allegedly conspired to generate and sell templated doctors’ orders for orthotic braces and pain creams in exchange for kickbacks and bribes. Their software allegedly facilitated a telemedicine scheme that yielded $2 billion in false claims. While these executives were charged, the companies with which they are associated were not. 

In another case announced at the same time, Steven Diamantstein, an owner and corporate officer of Scripts Wholesale, Inc., was charged after the company (which was not charged) allegedly purchased illegally diverted prescription HIV medication, and then marketed and resold the medication by falsely representing that the company acquired it through legitimate channels.

This omnibus announcement by the DOJ of “78 Individuals Charged for $2.5B in Health Care Fraud” in several unrelated cases clearly seemed calculated to underscore the Department’s prioritization of individual accountability. Attorney General Merrick Garland commented that “These enforcement actions . . . represent our intensified efforts to combat fraud and prosecute the individuals who profit from it,” and Assistant Attorney General Kenneth A. Polite, Jr., then-head of the DOJ’s Criminal Division, noted that “Today’s announcement . . . demonstrates the Department’s commitment to seeking justice for those at all levels of the healthcare industry who put profits above patient care, from professionals in doctors’ offices to executives in corporate boardrooms.”   

You’ve Uncovered Wrongdoing – What Now?

The Justice Department’s emphasis on prosecuting individuals can complicate companies’ investigations of alleged wrongdoing. Obviously, a company’s enhanced incentive to cooperate – which can be viewed as borderline coercive – by “turning in” its employees, creates potential formal and informal conflicts that can impede internal investigations. And in circumstances where the government’s theory of prosecution is more novel or nuanced than was the case with HealthSun, a company may not believe that its employees did anything wrong, which creates a dilemma in terms of government cooperation. After all, a company may be fully cooperative with the government’s investigation, but must it fire an employee it believes to be innocent of wrongdoing in order to receive leniency from the government in a prospective resolution of a disputed claim? 

When confronted with an instance of fraudulent conduct, defense counsel and corporate executives must carefully consider the seriousness of the misconduct they uncover and what a potential prosecution might look like in deciding whether and how much to disclose to the government, as well as the collateral consequences to their organization in subsequent civil litigation and business relationships. They also must evaluate the likelihood that the company ultimately will receive meaningful credit for its cooperation, an assessment which should include how the local U.S. Attorney’s Office typically handles cooperation credit, as each of the 93 United States Attorneys operate with a large degree of autonomy and discretion within their jurisdictions.

What the Future Might Look Like

One last note on our internal discussion here at Pietragallo about corporate and individual prosecutions, and where they might be headed, particularly in an election year where a change of the party in power is a distinct possibility. Over the past 15 years, the two Democratic administrations have taken a more formulaic approach while demanding more of corporations for cooperation credit, while the Trump Administration took a more holistic approach. 

One should be cautious to predict a less rigid insistence on individual accountability in these matters if the Republicans regain control of the federal government in 2025. First, the DOJ’s recent re-emphasis on individual accountability isn’t necessarily a reflection of partisan philosophy as much as a desire to demonstrate vigorous law enforcement in the midst of a notable decline in corporate prosecutions in recent years. The Department may believe that prosecuting individuals signals greater accountability than the corporate pleas or non-prosecution agreements the defense bar typically advocates strongly for in white collar cases. Moreover, individual accountability never goes out of fashion, and the Justice Department, no matter who leads it, will always proclaim an intention to hold individual wrongdoers accountable. 

That said, each new Administration should evaluate the effectiveness of the Department’s Principles of Corporate Prosecution and adjust them to ensure they are effective and meet their priorities. As a former Assistant United States Attorney and Associate White House Counsel who has experienced the modification of prosecution policies and priorities, I would expect that the next administration (whether in 2025 or in 2029) will consider whether the current stringent requirements for corporate cooperation credit – specifically for this discussion, the demand that “all”information about “all” individuals involved in wrongdoing be disclosed for the company to receive any credit – are yielding more or fewer voluntary disclosures. 

If such a review finds that corporations are not readily coming forward because of a belief that doing so ultimately may not get them the cooperation credit they seek or creates too many ancillary risks, we probably will see a new “DAG Memo,” with more flexibility for corporations, but with a sustained emphasis on individual accountability.

While the landscape for corporate prosecution may be layered with uncertainty, here are two time-tested approaches that no change in DOJ policy should affect. First, like so many business and legal decisions, the strategy to address a problem will depend on the particular facts of that situation, the applicable law, and the exercise of sound, clear-headed judgment as to the best interests of the organization. Second, regardless of whether a company chooses to cooperate or put the government to its proofs, it is incumbent upon its leadership to promptly put an end to any fraud or other wrongdoing of which it becomes aware, conduct a thorough internal investigation to determine the scope, mechanism, and cause of the misconduct, strengthen its compliance policies as needed, and refund any ill-gotten gains. 

Cooperation Done Right: Making Your Client’s Cooperation Substantial

Posted On Wednesday, December 27, 2023

The importance of adequately preparing a client to effectively cooperate with the government is illustrated by the recent fifty percent sentencing reduction granted to Dr. Michael Ligotti by Judge Ruiz in the Southern District of Florida. U.S. v. Michael Ligotti, 9:20-cr-80092. Ligotti had pled guilty to one count of conspiracy to commit healthcare and wire fraud in October 2022 for his role as the medical director for addiction treatment facilities that were paid kickbacks by testing labs performing hundreds of millions of dollars’ worth of unnecessary urinalysis. Ligotti cooperated extensively with the government in their prosecution of his co-conspirators, ultimately testifying at trial and helping the government to secure several convictions. As a result of his substantial cooperation Ligotti’s sentence was reduced from 240 months to 120 months. This is a very significant departure.

Given that over 98% of all federal cases end in plea bargains, and that most pleading Defendants seek to reduce their sentences through cooperation, prudent attorneys work closely with clients to prepare them for successful cooperation well in advance of their first meeting with the government. Indeed, such preparation should begin as soon as cooperation is explored.

Notably, at Ligotti’s Rule 35 motion hearing, AUSA James V. Hayes told the Sentencing Court that he was surprised at the level of remorse and commitment to cooperation Ligotti had shown. (Apparently a 20-year sentencing is motivating). However, the take-away is that remorse and candor go a long way with both prosecutors and the Court, as do convictions that result from a Defendant’s successful cooperation.

As most practitioners have experienced, Defendants are initially reluctant to be candid about their own culpability in criminal cases. For this reason, a Defendant who is not prepared to fully admit their own culpability can irreparably harm their ability to provide substantial cooperation. A Defendant who is not fully forthright about their own conduct from the start is not a good witness for the government against others. It is accordingly counsel’s responsibility to take their client through the process of confronting their own culpability before the client meets with the government. A client who plans to meet with the government to prove they are not guilty is 1) doomed to fail at that goal, 2) doomed to destroy any hope of successfully cooperating, and 3) doomed.

Remember, cooperating defendants generally get one chance to make a good impression and set the stage for successful cooperation. It is important to spend sufficient time refreshing a client’s memory of events prior to meeting with the government. The government will want to sense from the beginning that a client is a reliable source of information and will be effective and credible at trial. Most of the time, the events at issue occurred years before the government’s investigation so it is essential to spend time reviewing documents, emails, text messages, etc. to help a client to recall salient facts prior to the first meeting with the government. 

The best cooperators bring previously unknown information and documents to the government.  Counsel can and must help clients to gather and provide such information. To provide truly substantial cooperation, a witness should be able to do more than just confirm facts already known to the government.

It is also best practice to ask the government for a list of topics and individuals of particular interest in advance of each meeting. The government is often hesitant to share such documents and information, but it is important to remind the government that adequate preparation for the meeting is important to successful cooperation, which will only inure to the government’s benefit.  Sometimes this helps motivate the government to provide better guidance. At a minimum, the government should be willing to give an overview of salient talking points.

There is an unspoken rule that if a Defendant is likeable, it is more likely that the government will want their cooperation to be successful. A Judge will sense the relationship and reward it. A defiant client does not help themselves in this regard. Ensuring that a client is truly prepared to be candid, honest, and open with the government in advance of the first meeting is an important piece of fostering an amicable relationship. Becoming a member of Team USA should be every cooperating client’s goal. Certainly, this is what enabled Dr. Ligotti to receive the glowing accolades that led to the government’s generous recommendation and the Judge’s ultimately more generous sentence reduction.

Ultimately, it is not by accident that some cooperating Defendants are more successful than others. A skillful defense attorney is an integral part of creating the conditions necessary for successful cooperation and should always work closely with their clients to prepare them for success. It’s apparent that Dr. Ligotti was well prepared, and emotionally and factually ready to assist the government. The results he received speak for themselves.