On Sept. 16, 2011, a federal judge in Miami sentenced Lawrence Duran to 50 years in prison, the longest sentence ever imposed in a Medicare fraud case, for his role in a massive fraud scheme that resulted in more than $205 million in losses. Duran was also ordered to pay $87 million in restitution.
Duran was co-owner of American Therapeutic Corporation with Marianella Valera, his girlfriend. Both of them pleaded guilty in April to fraud, money laundering, and conspiracy charges after being arrested in October 2010. In their pleas, Duran and Valera admitted that they executed the scheme from 2002 until their arrest in 2010. A total of 34 people, including employees of American Therapeutic, doctors, and nurses were arrested in connection with the scheme.
Prosecutors said that Duran and his co-defendants billed Medicare for hundreds of millions of dollars in mental-health services that were either unnecessary or never provided. Prosecutors also said that Duran forged patient files for mentally ill people to make them seem eligible for sleep studies that they would not actually participate in, while American Therapeutic would pay kickbacks to recruiters to supply patients suffering from Alzheimer’s disease and similar conditions. Duran admitted that the patients could not have benefited from the company’s services.
Prosecutors also took note of the fact that Duran set up an advocacy group, the National Association for Behavior Health, to lobby in Washington to make it easier for mental health centers such as the one he ran to receive federal funding.
After a three-day sentencing hearing, a federal judge accepted the government’s recommendation of a very high sentence for Duran, who had pleaded guilty to 38 felonies. The judge said there is a “critical need for deterrence against health care fraud” in Florida, where Medicare corruption is a significant issue for law enforcement.
Marianella Valera pleaded guilty to 21 felonies and was sentenced to 35 years in prison. The 35-year sentence is the second longest ever for Medicare fraud. The indictment alleged that Valera manipulated records so patients would have to stay longer at the facility, thus accumulating more expensive Medicare bills.
“[The] sentencing demonstrates to those who defraud taxpayers of millions of dollars through health care fraud schemes that the FBI and our partners remain committed to investigating and prosecuting such fraud to the fullest extent of the law,” said FBI Miami Division acting Special Agent in Charge Xanthie Mangum in a statement.
Although the government said it was trying to send a clear signal to defendants that Medicare fraud will be taken seriously, and there is no doubt that Duran and Valera committed serious crimes, this sentence is excessive. The dollar amounts of loss here do not approach the loss amounts for other defendants who have committed major financial fraud. Additionally, these defendants pleaded guilty and admitted their acts in the plea agreement, whereas many of the perpetrators of significantly larger fraud who took their cases to trial received much more lenient sentences.
The sentencing guideline range for both defendants, it is true, allowed for a life sentence, but that has never been imposed in a Medicare fraud case. It will be interesting to see whether, on appeal, the U.S. Court of Appeals for the 11th Circuit rules that this sentence is substantively unreasonable because of its length.
Sometimes even the United States Congress does not know when to leave well enough alone.
Despite the growing sentiment that the federal government has overextended the reach of federal criminal law, both the House of Representatives and the Senate are considering legislation that would expand the ability of federal prosecutors to bring public corruption cases in areas now subject to prosecution only under state law. This legislation is designed to address a series of decisions by the United States Supreme Court that have limited the reach of federal criminal law in the public corruption sphere.
In 1987, in McNally v. United States, the U.S. Supreme Court limited the application of federal mail and wire fraud statutes to cases involving crimes against tangible property rights. The following year, Congress enacted section 1346 of Title 18 to specifically provide that the “scheme or artifice to defraud” required to show a violation of the mail and wire fraud statutes included “a scheme or artifice to deprive another of the intangible right of honest services.”
But in June 2010, in United States v. Skilling, United States v. Black, and United States v. Weyhrauch, the U.S. Supreme Court narrowed the scope of “honest services fraud” prosecutions to cases involving bribes and kickbacks. Although the Court was deeply divided, the majority specifically rejected the position of the United States Department of Justice that “honest services fraud” should include cases involving “self-dealing” – that is, taking some action that gives one personal gain, without disclosing that fact – or conflicts of interest.
One piece of legislation being considered on the House side (sponsored by Rep. Jim Sensenbrenner (R-Wis.) and co-sponsored by Rep. Mike Quigley (D-Ill.)) would restore the ability of prosecutors to bring cases based on such self-dealing. It would also apply mail and wire fraud statutes to licenses and other intangible rights (a response to the Supreme Court’s decision in Cleveland v. United States) and would override the Supreme Court’s 1999 ruling in United States v. Sun-Diamond Growers, which interpreted federal bribery law to require a specific connection between a gift and an official action. Other provisions would expand the availability of court-ordered wiretaps and the scope of the Racketeering Influenced and Corrupt Organizations Act, lengthen potential sentences and extend the statute of limitations for certain crimes.
A similar bill, sponsored by Sen. Patrick Leahy (D-Vt.), has been reported out of the Judiciary Committee and placed on the Senate’s legislative calendar.
At a hearing before the House crime subcommittee, Deputy Assistant Attorney General Mary Pat Brown testified that the Department of Justice supports the House proposal. Miller & Chevalier partner Timothy O’Toole, testifying on behalf of the National Association of Criminal Defense Lawyers, suggested that the bill’s provisions raise the same concerns about vagueness and federalism that previously led the Supreme Court to limit the scope of what prosecutors may do under the mail and wire fraud statute.
Assuming that this legislation has sufficient support to pass to be signed by the President into law, it is likely to represent yet another attempt by the federal government to overextend the reach of federal criminal law. Unfortunately, that may mean that it will be some number of years before the judicial system has effectively rejected such legislation as ambiguous or otherwise unconstitutional.
On July 14, 2011, Sen. Minority Whip Jon Kyl (R-Ariz.) and Senate Majority Leader Harry Reid (D-Nev.) sent a letter to U.S. Attorney General Eric Holder asking the Department of Justice to clarify its position regarding enforcement of online gambling laws.
The tone of the letter suggests that Sen. Reid, who has been a supporter of efforts to legalize online poker, and Sen. Kyl, an opponent of legalization who helped pass the Unlawful Internet Gambling Enforcement Act (UIGEA) in 2006, have doubts about the consistency and logic of the federal government’s view on legalized online poker. The UIGEA is the law that led to the indictments of several online poker sites earlier this year.
The letter notes, “These indictments came after many years in which the entities [that were indicted] operated Internet poker websites to Americans in an open and notorious way with apparently no repercussions from law enforcement.” The letter went on to say, “This lack of activity by law enforcement led to a significant and growing perception that operating Internet poker and other Internet gambling did not violate U.S. laws, or at least that the Department of Justice thought that the case was uncertain enough that it choose not to pursue enforcement actions.”
Sen. Kyl’s website includes a policy statement suggesting that he would give thought to efforts to legalize online poker, which he views as a game of skill. “Until I have the chance to review them, I cannot make a judgment about their merits; but I will consider them carefully as long as they leave in place the broader proscriptions against online betting,” Sen. Kyl posted on his website.
The letter goes on to raise concerns that the spread of efforts underway in over a dozen states to legalize intrastate Internet gambling could possibly be illegal. The states cite the silence of the DOJ in the face of these efforts as acquiescence. Several officials from various state lotteries have claimed to have the consent of DOJ by writing letters discussing their plans that stated if no objection was received they would continue with their plans to implement Internet gambling. These states never received any objections.
One of these letters sent to DOJ was from New Jersey State Senator Raymond J. Lesniak, a sponsor of New Jersey’s proposed sports betting and Internet gambling legislation, contending that New Jersey has every right to enact intrastate Internet gambling under federal law. Earlier this year, Sen. Lesniak sponsored a bill that would have authorized New Jersey casinos to operate intrastate online gambling, which was ultimately vetoed by Governor Chris Christie because of concerns over the mechanics of the bill. Sen. Lesniak has stated that he would have new Internet gaming legislation that took into account the Governor’s concerns ready to introduce in the fall.
In his letter, Sen. Lesniak pointed out that the text of UIGEA allows for intra-state Internet gambling: “The term ‘unlawful Internet gambling’ does not include placing, receiving, or otherwise transmitting a bet or wager where . . . the bet or wager is initiated and received or otherwise made exclusively within a single state.” 31 U.S.C. 5362 (B)(i). Sen. Lesniak also stated that the other federal law often cited as applying to online gaming, the Interstate Wire Act of 1961 (Wire Act), was designed to prevent illegal gaming activity across state lines. Thus, purely intrastate gaming would be permissible under the Wire Act.
We wrote earlier this year that D.C. Attorney General Irvin Nathan testified that efforts in the District to establish online intrastate gambling were in compliance with all federal laws.
The Reid/Kyl letter clearly shows that online poker is on the minds of legislators on Capitol Hill. It is not clear if this letter would have any effect on legislation currently pending in Congress to legalize online gambling, but it seems to suggest that one of online poker’s biggest past opponents is now more open to legalization than before. Regardless, this letter may force the DOJ to reevaluate and justify its position regarding Internet gambling, which we would see as a healthy development.
The momentum toward federal legalization of online poker took a significant step forward on Friday, June 24, when Rep. Joe Barton (R-Tex.) held a press conference to discuss the details of his legalization bill. The “Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act of 2011” would both legalize online poker and create a new federal agency to oversee its administration.
Rep. Barton said at the conference, “This bill is about having the personal freedom to play a skill-based game you enjoy without fear of breaking the law.”
It is notable that Rep. Barton referred to poker as a game of skill rather than chance. This question has arisen in prosecutions of online poker operators, who contend that their game is not a gambling game but a test of skill. If the bill passes, it would probably give a major boost to these defenses.
In the past, the support for legalizing online poker has come from Democrats, but Rep. Barton, a conservative Republican, acknowledged being influenced by his constituents who want online poker to be legalized. “Clearly, Americans want to gamble on the Internet, and policymakers need to provide both the freedom to do so and ensure appropriate consumer protections are in place,” he said at the press conference.
Rep. Barton also contends that the bill would create thousands of jobs and substantial tax revenue for the federal and state governments.
The challenge for Rep. Barton now is generating the bipartisan support needed to get the bill passed. The bill has eleven co-sponsors, including seven Democrats. Even though Congress is in general gridlock because of significant partisan differences on most issues, the existence of some bipartisan support for this bill could increase the chances of advancing the legislation in this session.
The bill would create an interstate licensing program for Internet poker sites but would give each state the option of not participating in the program. It would establish a new Federal “Office of Internet Poker Oversight” in the Commerce Department that would qualify state agencies to issue licenses to poker sites. The sites would have to obtain a license issued by a qualified state agency and could not knowingly accept wagers by a person who resides in a state that chooses not to allow bets.
The bill would not allow existing Internet poker sites to obtain licenses. It only allows qualified state agencies to issue operating licenses to a company or individual that operates a casino or a qualified racetrack, owns it 10 days before the enactment of the bill, and has owned it for the past five years. The bill further requires all remote gaming equipment associated with the license to be located in the United States.
The bill would allow for the expansion of licenses to other online sites after a two-year period if it is believed that the issuance of licenses to those other than previous holders would not significantly increase the risks that the sites would be used by underage persons or those residing in jurisdictions where wagering is not allowed, and if it could be assured that the games are fair, taxes are paid, and the site is not being used to launder money.
This clause would allow for currently existing poker sites to eventually apply for a license — but not to obtain one at the outset. Additionally, the poker sites that can obtain a license at the outset would have been in the market developing a consumer base for two years, putting the sites considering entering the market two years later at an enormous competitive disadvantage. Thus, companies with existing licenses would certainly oppose this regime.
However, the text of the bill does suggest that a possible loophole may exist for current online poker sites, such as Full Tilt Poker, to partner with companies that have existing gambling licenses before the passage of the bill in order to apply for a license.
Rep. Barton’s bill would limit liability under the existing Unlawful Internet Gambling Enforcement Act to those that operate online gambling sites that include games other than poker, or that operate without a license. The bill would eliminate liability for a financial transaction provider that engages in any payment processing unless the provider has actual knowledge that the financial activity or transaction was conducted in violation of the law.
If a company’s license is revoked, the law would require that all funds be returned to players within 30 days. The bill contains a provision that would prevent license holders from accepting payment via credit card. This provision is intended to prevent abusive gamblers from racking up credit card debt. The bill also provides that a person who believes he or she is vulnerable to developing a gambling addiction or piling up too much debt can be placed on a list that would require the license holder to limit his or her involvement in the game.
The introduction of this bill is a huge step forward in the legislative battle to legalize online poker. It remains to be seen if it will be able to make it through Congress, but Rep. Barton believes that this bill will generate bipartisan support that has previously been lacking on Capitol Hill for online poker legislation. The bill will likely undergo changes as it weaves through the legislative process, and we will continue to monitor and report on any developments.
Federal prosecutors often take very seriously the prohibitions on illegal lobbying and on withholding the truth from the FBI. That’s one of the lessons that former U.S. Rep. Mark Siljander probably learned last month when he pleaded guilty to two federal charges relating to his alleged ties to an Islamic charity claimed to have funded money to international terrorists.
When Siljander was indicted in January 2008 on charges of money laundering, obstruction of justice, and conspiracy related to his dealings with the now-defunct Islamic America Relief Agency, then based in Columbia, Mo., the news created quite a stir. The alleged involvement of a conservative former Michigan congressman with a charity suspected of having terrorist ties made headlines. Siljander faced charges of money laundering and conspiracy, among other charges.
The money laundering and conspiracy charges will now be dismissed after Siljander’s July plea to illegal lobbying and obstruction of justice.
Prosecutors say, and Siljander has acknowledged, that he received $75,000 from the charity to push for its removal from a U.S. Senate Finance Committee list of charities assisting terrorism and that the group paid him with funds obtained from the U.S. Agency for International Development for work it was supposed to have done in Africa but didn’t.
Prosecutors also say that Siljander lied to the FBI about being hired to lobby for the charity. He told investigators that the money he received was actually a donation to help him write a book about Islam and Christianity.
No terrorism charges were ever made against Siljander, and the headline-grabbing money laundering and conspiracy charges were dismissed. But he still faces up to 15 years in prison and a fine of up to $500,000 after pleading guilty.
As is often the case in white-collar crime, the lesson is to follow the rules and if you do decide, for whatever reason, to speak to authorities – tell the truth.
Without the plea deal, Siljander could have been sentenced to life in prison. Since there is no minimum sentence for either charge to which Siljander pleaded guilty, he will face a much lighter sentence, including possibly probation, but more likely two to three years.