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Reporting Fraud: HIPAA What You Should Know!

If you find yourself in a position to blow the whistle on fraud in your organization, there are a lot of questions and grey areas that come up. At the beginning stages of building your case, you’ll have to gather a lot of evidence to prove an instance of fraud, but this is not so simple for healthcare workers.

A challenge for potential whistleblowers is understanding what an individual can take from their employer in order to prove their violation of the False Claims Act or compliance regulation, while navigating privacy laws like HIPAA.

The importance of understanding HIPAA in whistleblowing

Potential whistleblowers shouldn’t let HIPAA deter them from coming forward with their cases. There are exceptions designed to permit vital whistleblower activities:

HIPAA Whistleblower Safe Harbor – Protects whistleblowers to disclose HIPAA-protected material to their attorneys and the government in the instance that the whistleblower believes in good faith that their employer has provided unlawful or dangerous care. To clarify, whistleblowers can disclose PHI to evaluate potential claims and to submit required information for the False Claims Act.

De-identification Safe Harbor – Whistleblowers can comply with HIPAA by removing identifying information (names, birthdates, treatment dates, geographical information, etc.) from evidential documentation. PHI must be completely removed from the document, not just covered, to be protected by the de-identification safe harbor.

HIPAA Whistleblower Retaliation Protection – HIPAA-protected entities are forbidden from threatening, intimidating, harassing, discriminating against, or taking any other retaliation against whistleblowers.

As an example, let’s look at the case of United States v. Safeway, Inc. from 2106. In this case of pharmacy overcharging, the whistleblower provided 18 instances of false claims. While the defendant claimed these claims contained information that violated HIPAA, the court ruled that since only initials were used to name patients, the claim was protected by the de-identification safe harbor. However, even if full names were used in discussion with the whistleblower’s attorney, it was protected under the whistleblower safe harbor.

Reporting fraud that involves HIPAA-protected information

While there are measures in place for protecting whistleblowers in HIPAA-protected organizations, it’s in your best interest to have a whistleblower expert guide you through the process.

If you have witnessed wrongdoing in any healthcare or pharmaceutical setting, the best first step would be to reach out to the team at the DJO Whistleblower Law Group to set up a confidential consultation and determine the best approach for your unique situation. We can help guide you through the complex process, make sure you are protected, and potentially get you the reward you deserve for bravely stepping forward.

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Misleading Investors Leads to Serious Consequences: How Former Executives Can Still Be Held Accountable

Working for an investment firm, you want people to take their hard-earned money and just throw it away, right? Of course not.

But that’s essentially what’s happening when companies mislead their investors. Getting investments under false pretenses is unfair and fraudulent. Companies that participate in this kind of fraud need to be held accountable for their actions. Employees like you can play a crucial role in exposing this kind of fraud and protecting innocent investors from unnecessarily losing their money with the help of whistleblower programs.

Executives who spearhead fraud, or willingly let it happen around them, should bear most of the responsibilities for their companies’ wrong-doings. There’s a false misconception that once an executive is no longer with a company, they can be exonerated from wrong-doings that took place during that time.

Former executives can — and should — still be held accountable for their actions. In two very recent cases, that’s exactly what happened. Let’s take a closer look at those two cases.

In September 2018, the SEC charged LendingClub Asset Management LLC and its former president Renaud Laplanche, along with parent company LendingClub Corporation’s former CFO Carrie Dolan, with improper use of investment fund money. There were two main complaints against LCA and Laplanche:

  • Breach of fiduciary duty by using funds managed by LCA to benefit its parent company rather than the fund.
  • Improper adjustments of monthly returns for funds to improve investor report numbers.

In both of these instances, Laplanche and LCA were misleading investors and not acting in their best interest. They failed to present a transparent, straightforward report of performance, so investors were denied their right to make informed investment decisions. As a result, the three were ordered to pay more than $4.2 million in combined penalties.

Another major instance of misleading investors came to light in April 2019. From July 2015 to May 2017, Prosper Funding LLC reported overstated annualized net returns to more than 30,000 investors via emails and website information. Many investors were misled by those inflated numbers and made additional investments under false pretenses. The order also states that Prosper failed to correct their error despite being aware of the miscalculation of the net returns. As a result, Prosper paid a $3 million penalty.

What these cases both have in common is that former executives purposefully misled investors. With inaccurate information, many investors made the decision to make investments that they may not have made if they had the correct information. This is a serious case of fraud, and even executives who are no longer at the company need to be held accountable.

Unfortunately, fraud involving misleading investors continues to happen today. It’s important for potential whistleblowers to know that it’s never too late to report financial fraud or wrongdoing, even if the person responsible is no longer part of the company at fault. While it may seem intimidating to report an executive at your company, it’s important for keeping investors protected while holding organizations (and the individuals in charge) accountable for their actions.

Anti-retaliation laws exist for this reason; so brave employees like you can come forward to honestly report instances of fraud without fear. Since it’s a complex process, it’s best to do so with the guidance of whistleblower experts, like the team at the DJO Whistleblower Law Group.

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Ensuring Compliance: Unregistered Offers and Sales of Security-Based Swaps Is a Growing SEC Concern

The SEC is continuously monitoring different transaction types to make sure they are following rules and regulations. One thing that has caught the SEC’s eye lately involves security-based swaps. Because security-based swaps are based on a security such as a stock or bond, or a credit default swap, they are subject to different rules and regulations than other types of swaps.

This is a highly regulated transaction, so it’s important that all parties involved understand and abide by SEC guidelines. That’s not always the case, however, as unregistered offers and sales of security-based swaps are becoming more and more of a concern for the SEC.

Let’s take a deeper look at security-based swaps and signs that your firm is engaging in fraudulent behavior.

The importance of registering security-based swaps with the SEC

Security-based swaps are regulated by the SEC. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act designated the SEC as the regulator for security-based swaps while the CFTC regulates other types of swaps. Under this act, the SEC monitors and regulates:

  • The major players in the security-based swap market
  • Trading platforms and exchanges on which security-based swaps are transacted
  • Clearing agencies that step in in the case of a default
  • Data repositories and methods for disseminating data to the public

Your firm should be registering every security-based swap with the

SEC. Doing so gives the SEC insight into the transaction to ensure they are adhering to the proposed capital, margin, segregation, and business conduct standards. If your firm is doing something different, please contact us.

What happens when unregistered security-based swaps are sold?

Failing to register security-based swaps when offering or selling is a major issue. First of all, it goes against the SEC’s process and procedure. Second, not registering the security-based swap is likely an indication that there are shortcuts being taken or other regulations not followed. Either way, it is a violation of a federal security law and needs to be taken seriously.

Here are two examples of this type of fraud in action, along with the consequences that followed:

Abra, July 2020

California-based app developers Abra and a related firm in the Philippines were found by the SEC to be offering and selling security-based swaps to retail investors without registration. The transactions were also not conducted on a registered national exchange.

Abra’s app allows individuals to enter into contracts and obtain synthetic exposure to price movements of stocks and funds through blockchain-based transactions. Abra’s app allowed users to choose securities whose performance they wanted to mirror, and the value of their contract would go up or down accordingly. However, these contracts were security-based swaps and subject to the SEC’s laws. Abra marketed its app to retail investors without taking the time to determine if the app users were eligible contract participants as defined by the securities laws. Abra faced penalties totaling $150,000 and faced a shutdown of their current app operations.

Tradenet Capital Markets, October 2020

Israeli company Tradenet Capital Markets Ltd. offered and sold security-based swaps to over 5,000 retail investors without registration and not on a registered national exchange. The day-trading education firm sold packages of materials that they claimed to be educational, but also paid investors profits from simulated trades as part of the packages.

The SEC’s investigation found that the contracts provided to fund these trading accounts were security-based swaps, yet no registration had been filed for them. Tradenet faced a cease-and-desist order and a financial penalty of $130,000 as a result.

How to spot fraud in your firm

As you can see from these examples, there are tell-tale signs you can look for that indicate your firm is engaging in fraud related to security-based swaps. The most effective way to spot fraud is to request confirmation of SEC registration of every security-based swap. If the documentation doesn’t exist, the swap is likely not registered and you should not proceed with the transaction until it has been.

Additionally, make sure all educational material that you plan to distribute to your investors is factual, accurate, and do not mislead investors.

It’s important that all security-based swaps are registered with the SEC and follow all guidelines. It’s just as important for all instances of unregistered offers/sales of security-based swaps to be reported so responsible parties can be held accountable. If you have spotted any similar behaviors in your firm, it’s important to come forward as soon as possible. The team at the DJO Whistleblower Law Group is here to help — start your whistleblower process with a confidential consultation.

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Misusing Cash and Putting Customer Securities at Risk: Taking A Deeper Look at Fraud Taking Place on Wall Street

When investors put their money in the hands of Wall Street, they should be able to do so with the understanding that they’re doing so in a transparent, trustworthy manner.

Unfortunately, that doesn’t always happen. Broker-dealers sometimes misuse cash or fail to disclose complete and important information, putting customer securities at risk.

It’s important to know what fraud on Wall Street looks like so we can work together to keep investment firms accountable. Let’s take a look at some of the regulations that exist to protect investors and some instances where they were not followed.

What are some regulations that protect investors?

The SEC put a number of measures in place to help prevent fraud and protect investors. Two important ones to call out are:

The Consumer Protection Rule Initiative – The Consumer Protection Rule aims to “avoid, in the event of a broker-dealer failure, a delay in returning customer securities or worse, a shortfall in which customers are not made whole, by requiring broker-dealers to safeguard both the cash and securities of their customers.” This protects investors by requiring that a broker-dealer keeps a reserve of funds at least equal to the amount of net cash owed to customers. You can read more about the Consumer Protection Rule Initiative here.

Regulation SHO – Regulation SHO outlines a code of conduct regarding short sales. It requires broker-dealers to “identify a source of borrowable stock before executing a short sale in any equity security with the goal of reducing the number of situations where stock is unavailable for settlement.” It has been amended several times in order to provide clarification and exceptions; but for the most part, Regulation SHO has made a significant impact on keeping the market even. You can read more about Regulation SHO here.

Examples of misusing cash and putting customer securities at risk

Unfortunately, these and other rules and regulations sometimes get broken. In that case, investors usually suffer a financial loss while investment firms reap profits. Here are three examples of fraud on Wall Street that violated regulations:

In September 2020, Morgan Stanley agreed to pay $5 million for violating Regulation SHO. According to the SEC, Morgan Stanley was using the same management structures, locations, strategies, and objectives for their long sales as their short sales. Even though hedges were separated into different aggregation units (long and short), the “long” sales were operating as short sales and did not meet Regulation SHO’s exception permitting broker-dealers to establish aggregation units because they were not independent and did not have a separate trade strategy.

In 2016, Merrill Lynch was ordered to pay $415 million to settle charges of misusing customer cash to generate profits. To summarize, Merrill Lynch violated the Customer Protection Rule by using customer cash that should have been kept in the reserve account to engage in complex trades. While that resulted in billions of dollars in revenue from 2009 to 2012 for Merrill Lynch, it would have also resulted in a shortfall for customers if those trades failed. Merrill Lynch also failed to hold fully-paid customer securities in a lien-free account to protect them in the event of the firm collapsing.

A little further back in 2010, Goldman Sachs paid a record $550 million to settle SEC charges regarding a synthetic collateralized debt obligation (CDO). The settlement stated that Goldman Sachs misstated and omitted key facts about the CDO to investors; for example, no information was disclosed about the ABACUS 20017-AC1 that discussed the role the hedge fund Paulson & Co. Inc. played in the portfolio selection process and the short position they had taken against the CDO. Failure to provide accurate, transparent information misleads investors.

As you can see, there are serious ramifications for going against Wall Street regulations and guidance. This type of behavior is illegal, immoral, and needs to be addressed as soon as possible in order to protect investors. If you work in the financial sector and are aware of similar fraud taking place, contact the team at the DJO Whistleblower Law Group. We will work with you every step of the way to ensure your company is held accountable and you are protected, and possibly even rewarded.

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Tips for Mitigating FCPA Risks After a Record Year of Corporate Fines & Penalties

The Foreign Corrupt Practices Act (FCPA) was enacted by the U.S. Department of Justice (DOJ) and the Securities Exchange Commission (SEC) to serve a few key anti-bribery and accounting purposes.

Most notably, the FCPA prohibits U.S. persons and businesses (or foreign public companies that are listed on the U.S. stock exchange or subject to the act under other qualifications) from “paying, offering, promising or authorizing the payment or offer of money or ‘anything of value,’ directly or indirectly, with corrupt intent, to a ‘foreign official,’ political party official, or candidate in order to obtain or retain business,” according to the National Law Review.

The year 2020 saw a record level of $2.78 billion in penalties and fines for FCPA violations. Additionally, there were billions of dollars recovered by the DOJ and SEC in cooperation with other countries for similar violations.

Coming off this record year of FCPA corporate fines and penalties, companies (especially those doing business with high-risk countries such as China, India, and Brazil) need to take steps to mitigate risk in this area.

Here are tips for mitigating FCPA risks before learning how to report FCPA fraud:

1. Thoroughly evaluate third-party companies

If a company is providing third-party services on your behalf, you are legally responsible for any corrupt actions that take place. Utilizing a third-party company is often necessary but can carry tremendous risk, as 90% of FCPA enforcement actions involve a third party providing services to a company (according to the National Law Review).

Companies should have an effective FCPA compliance program that includes thorough evaluation of third-party companies. This evaluation can detect common FCPA red flags that include:

  • Requests for cash payments
  • Large commissions to agents
  • Large discounts to distributors
  • Lack of documentation for payments
  • Vaguely described services
  • Discrepancies between a consultant’s experience/area of expertise and services being offered
  • Close ties between the third party and a foreign official
  • The third party being a shell company incorporated in an offshore jurisdiction or requesting payments to an offshore bank account

2. Understand the nuances around lavish or excessive meals, gifts, travel, or entertainment

The FCPA prohibits companies or individuals from offering anything of value to foreign officials. “Anything of value” is defined as money, lavish meals, gifts, travel, or entertainment. Only gifts that are given appropriately, transparently, and with proper recording are acceptable.

To mitigate this risk, companies need to familiarize themselves with what constitutes a “foreign official” in the specific industry they are dealing with. Also, carefully monitor the giving of gifts and hospitalities no matter who they are being given to for an extra layer of risk mitigation.

3. Utilize the Transparency International Corruption Perceptions Index 2020

Risk assessments aren’t a one-size-fits-all solution. For example, there is significantly more risk involved with doing business with some countries than others; standardizing practices based on low-risk partners can leave companies susceptible to issues when dealing with higher-risk countries.

The Transparency International Corruption Perceptions Index 2020 is a resource companies can use to assess the relative corruption risk for specific countries. It also offers resources per specific countries to help companies make smarter decisions.

The above tips should be non-negotiable business practice for businesses, but unfortunately that’s not always the case. If you notice that one or more of these practices aren’t being followed in your company, you should come forward and take action to report FCPA fraud. Reach out to the Daniel J. Ocasio Whistleblower Law Group for a confidential conversation to determine if you have cause for a fraud case. If you do, our experts can work with you every step of the way to ensure your company is held accountable, per whistleblower laws, and you are protected, and possibly even rewarded.

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From Compliance Failures to Abuse of Power: Common Fraud that Takes Place in Hedge Funds and Beyond

Hedge funds are complex in nature and can take on a high level of risk. Paired with the large sums of money being handled and investors’ net worth, hedge funds become prime breeding grounds for fraud.

While this is not to say that all hedge funds are fraudulent, there is, unfortunately, a high rate of fraud in this industry given the amount of money handled. When fraud does occur, it is most commonly seen as an intentional compliance failure or an abuse of power/position.

Let’s take a closer look at the types of common fraud that takes place in hedge funds, as well as some recent examples.

Misrepresenting risk

There are several regulations in place regarding how advisers present risk parameters to investors in order to fully disclose any possibilities of significant losses. Fund managers must show transparency and honesty when discussing their risk management procedures.

Case in Point: Catalyst Capital Advisors LLC/Jerry Szilagyi

In January 2020, The Securities and Exchange Commission (SEC) announced charges against Catalyst Capital Advisors LLC (CCA) and President and Chief Executive Officer Jerry Szilagyi. They agreed to pay a combined $10.5 million in settlement fees for breaching risk parameters and failing to take corrective action in response. While investors were told the risk management process had safeguards to prevent losses of more than 8%, the fund lost approximately 20% of its value from December 2016 to February 2017, and no corrective action was taken.

Compliance failures related to policies and procedures

Private funds are also subject to compliance regulations around properly showing the value of securities in funds. When fund managers fail to comply, they can undervalue securities and sell them for a profit when they want. To combat this, fund managers are required to prove information about valuation and pricing vendors.

Case in Point: Deer Park Road Management Company, LP

 In June 2019, The SEC announced that Deer Park Road Management Company, LP agreed to pay $5 million in settlements, with their Chief Investment Officer paying an additional $250,000 penalty. The case against them included failures to have policies and procedures that addressed risk along with providing inaccurate information to a pricing vendor. That allowed them to mark assets up gradually rather than marking them to market as required.

Abuse of power or position

Many hedge fund managers hold positions on committees and boards, making them influential within the industry. Sometimes that influence goes too far, and individuals abuse their power and position for their own benefit. Not only is this immoral, but it is also illegal when it interferes with objective decision-making.

Case in Point: Daniel Kamensky

In September 2020, the SEC charged Daniel Kamensky with abusing his position as co-chair of the unsecured creditors committee in the Neiman Marcus Group Ltd. LLC Chapter 11 bankruptcy proceedings. He leveraged his position on the committee to manipulate a bidding process in order to benefit a portfolio he managed at the expense of the unsecured creditors. The complaint described that he sought to purchase securities being distributed as part of the Neiman Marcus proceedings and coerced a competing bidder to withdraw their higher bid using his committee position.

What to do if you suspect hedge fund fraud

If you believe you’ve witnessed hedge fund fraud, you can be part of the solution. While it may be an unsettling or downright scary process, it’s the right thing to do — becoming a whistleblower in these instances can hold individuals accountable for their actions and prevent people from losing a significant amount of money in the future.

Whistleblowing is a lot less stressful when you have the right team by your side — having experienced law professionals, past whistleblowers, and investigators advocating for you increases the chance of a positive outcome.

As a whistleblower, you are valued and appreciated by the team at the Daniel J. Ocasio Whistleblower Law Group. Reach out today to schedule a confidential consultation about the hedge fund fraud you have witnessed.