SCOTUS Declines to Hear False Claims Act Challenge

On January 22, the US Supreme Court denied a petition to hear a challenge to a Fifth Circuit Court of Appeals decision that upheld scienter and False Claims Act (FCA) findings against Stone County Hospital Inc., its management company (Corporate Management Inc.), and the company’s owners — Ted and Julie Cain.

Stone County Hospital, Corporate Management, and the Cains were accused of taking advantage of the hospital’s status as a critical access hospital to defraud Medicare out of millions of dollars. Critical access hospitals are reimbursed at 101% of reasonable costs, and payments are provided throughout the year. The Cains were accused of using this unique Medicare payment system to give themselves excessive salaries and seek reimbursement for two BMWs. 

The Court of Appeals upheld the jury’s scienter and FCA findings, but agreed to reduce damages, relying on an expired statute of limitations. The Court of Appeals also heavily criticized the government for taking more than eight years to intervene in the case.

Prosecutors Seek 30 to 37 Months for Trader Who Stole Information From Law Firm

Late last week, federal prosecutors in Manhattan filed a sentencing memorandum in their case against Brandon Wong, who traded on information stolen from a Covington & Burling LLP associate. 

Prosecutors are seeking 30 to 37 months in prison, arguing that Wong caused several other people to trade on the same Pandion Therapeutics stock, planned to repeat the scheme had he not been caught, and bragged that he’d poured his life savings into the stock.

Wong pleaded guilty to one count of securities fraud in April 2023. According to the government, Wong was tipped off by his co-defendant, Seth Markin, whose then-girlfriend was an associate at Covington & Burling LLP and had been working on a deal involving Pandion’s acquisition by Merck & Co. After the acquisition was made public, Wong sold all of his Pandion shares and made more than $1.3 million in net profits.

Billionaire Joe Lewis Pleads Guilty to Insider Trading

On January 24, billionaire Joe Lewis pleaded guilty in the Southern District of New York to one count of conspiracy to commit securities fraud and two counts of securities fraud. 

Lewis is the principal owner of the Tavistock Group, an international private investment organization. Through his investments, Lewis controlled one or more board of director seats at those companies and received material, non-public information. According to the government, on multiple occasions and over several years, Lewis misused and misappropriated this confidential information to provide stock tips to various individuals, including employees, romantic partners, and friends. Those individuals, according to the government, traded on the tips that Lewis provided for personal gain.

Broad Bay Ltd., a corporate entity owned and directed by Lewis, also pleaded guilty in connection with its participation in a securities fraud scheme to hide Lewis’s ownership shares in a pharmaceutical company. Broad Bay Ltd. pleaded guilty to one count of securities fraud and agreed to pay $50 million in financial penalties, among other penalties.

As part of both guilty pleas, Lewis and Broad Bay Ltd. have agreed that Lewis and his companies will give up their control of board of director seats and participation in board of director meetings of any corporation publicly traded in the United States, will cease ownership of certain investments, and will cooperate with the government’s ongoing investigation and prosecution.

The US Department of Justice’s (DOJ) press release is here.