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A practitioner of health care fraud, bank/mortgage fraud, and securities fraud should be familiar with 18 USC § 1345, a statute that allows the federal government to bring a civil action to enforce the commission or imminent commission of a federal health care offense, the bank-foreclosure offense real estate, securities offenses, and other offenses under Title 18, Chapter 63. Otherwise known as the Federal Fraud Order Act, it also authorizes a court to freeze the assets of people or entities who acquired property as a result of past or ongoing federal bank violations, health care violations, or Securities or other covered federal offenses. This legal power to restrict such behavior and freeze a defendant’s assets is a powerful tool in the federal government’s anti-fraud arsenal. Section 1345 has not been widely used by the federal government in the past in connection with healthcare and hospital fraud prosecutions, bank mortgage and securities cases, however, when sued by the government it can have an enormous impact on the outcome of such cases. Healthcare and hospital fraud attorneys, bank fraud attorneys, mortgage and securities fraud law firms must understand that when a defendant’s assets are frozen, the defendant’s ability to sustain his or her defense can be fundamentally affected. A white-collar criminal defense attorney must advise his clients in health care and hospitals, mortgage banking and securities, that parallel civil proceedings can be filed by federal prosecutors simultaneously with a criminal indictment related to one of the covered offenses.
Section 1345 authorizes the US Attorney General to initiate a civil action in any federal court to order a person to:
• Violating or about to violate 18 USC §§ 287, 1001, 1341-1351, 371 (containing a conspiracy to defraud the United States or any agency thereof)
• Committing or about to commit a violation of the Banking Act, or
• Committing or about to commit a federal health care offense.
Section 1345 also provides that the United States Attorney may obtain an injunction (without bond) or restraining order preventing any person from removing, withdrawing, transferring, removing, dissipating, or otherwise disposing of property obtained as a result of a violation of the Banking Act or a violation of the Banking Act. Securities, federal health care crime, or property traceable to such violation. The Court shall promptly proceed with a hearing and determine any such action, and may enter a restraining order or prohibition, or take such action, as may be required to prevent continuing and serious harm to the United States or to any person or class of persons for whose protection the action is brought. In general, a claim under section 1345 is governed by the Federal Rules of Civil Procedure, except where an indictment has been returned against the defendant, where discovery of the case is subject to the Federal Rules of Criminal Procedure.
The government successfully invoked Section 1345 in the federal health care fraud case of United States v. United States. Bisig et al., Civil Suit No. 1: 00-cv-335-JDT-WTL (SDIn.). The case began as a divorce case by the Relator, FDSI, a private company engaged in detecting and prosecuting false and incorrect billing practices involving Medicaid. The FDSI has been designated by the State of Indiana and granted access to the Indiana Medicaid billing database. After investigating defendant Home Pharm, FDSI filed a lawsuit qui tam in February 2000, pursuant to the Civil False Claims Act, 31 USC §§ 3729, et seq. The government quickly joined the FDSI investigation into Home Pharm and Miss Bisig, and in January 2001, the United States filed suit under 18 USC § 1345 to enforce ongoing criminal fraud and freeze the assets of Home Pharm, Peggy, and Philip Bisig. In 2002, an indictment was returned against Ms. Bisig and Home Pharm. In March 2003, an indictment was filed in criminal prosecution charging Mrs. Bisig and/or Home Pharm with four counts of violation of 18 USC § 1347, one count of illegal payment of bribes in violation of 42 USC § 1320a-7b(b)(2)( a), and one count of mail fraud violating section 18 USC 1341. The dismissed indictment also asserted a criminal allegation of forfeiture of certain property of Ms. Bessig and Home Farm to the United States pursuant to 18 USC § 982(a)(7). Under the plea agreement, Ms. Bisig agreed to forfeit numerous real and personal property that she personally acquired during her scheme, as well as the assets of Home Pharm. The United States forfeited approximately $265,000 in the injunction and recovered approximately $916,000 in property forfeited in the criminal proceeding. The Court held that Habitat could share in the proceeds of the recovered assets because the sender’s rights in the forfeiture proceeding are governed by Section 31 of USC 3730(c)(5), which states that the principal retains “the same rights” in an alternative proceeding as it would have in a proceeding qui tam.
One of the main issues when invoking Section 1345 is the range of assets that may be frozen. Under Section 1345(a)(2), the property or proceeds of a fraudulent federal health care crime, banking misdemeanor, or securities crime must be “traceable to such violation” in order to be frozen. United States v. DBB, Inc.180 F.3d 1277, 1280-1281 (11th Cir. 1999); United States v. Brown988 F.2d 658, 664 (6 Cir. 1993); United States v. Fang, 937 F.C. 1186, 1194 (d. United States v. Quadro Corp.916 F.C. 613, 619 (EDTex. 1996) (The court may freeze assets that the government has demonstrated to be connected to the alleged scheme). Although the government may seek triple damages against a defendant under the Civil False Claims Act, the amount of triple damages and civil financial penalties does not specify the amount of assets that can be frozen. Again, only proceeds attributable to the criminal offense can be frozen by law. United States v. Sriram147 F.Supp.2d 914 (National Democratic Institute. 2001).
The majority of courts have found that an injunction under the law does not require the court to perform a traditional arbitrage analysis under Section 65 of the Federal Rules of Civil Procedure. Identification card. Irreparable harm, inadequacy of other remedies, or balancing of interests need not be proven because the mere fact that a law has been passed means that the breach will necessarily harm the public and must be restrained where necessary. Identification card. The government need only prove, by a preponderance of the standard of evidence, that a crime occurred. Identification card. However, other courts have weighed traditional injunctive relief factors when confronting a claim under Section 1345. United States v. Hoffman, 560 F.Supp.2d 772 (D.Minn. 2008). These factors are (1) the threat of irreparable harm to the transferee in the event of failure to salvage, (2) the balance between that harm and the harm that the relief might inflict on other litigants, and (3) the possibility of the transferee falling permanently. Success is based on merit and (iv) the public interest, and the proofreader bears the burden of proof in respect of each factor. Identification card.; United States v. Williams, 476 F.Supp2d 1368 (MDFl. 2007). No single factor is decisive, and the basic question is whether the balance of equity is so skewed that justice requires the court to step in to maintain the status quo until the merits are determined. If the threat of irreparable harm to the transferee is slight when compared to the possible injury to the other party, the transferee carries a particularly heavy burden of showing probability of success on the merits. Identification card.
In the Hoffman In the case, the government presented evidence of the following facts to the court:
• Beginning in June 2006, the Hoffman Defendants established entities to purchase apartment buildings, convert them into condominiums, and sell individual condominiums for a substantial profit.
• To finance the project, the defendants in Hoffman and others deceptively obtained mortgage loans from financial institutions and mortgage lenders in the names of third parties, and the Hoffmans directed outside buyers to cooperating mortgage brokers to apply for mortgages.
• Applications for subject loans contained many material misstatements, including inflated purchasers’ income and bank account balances, failure to list other properties purchased at or near the time of existing property, failure to disclose mortgages or other liabilities and mischaracterization of the payment originator Introduction provided at closing.
• The Hoffman defendants used this method from January to August 2007 to purchase more than 50 properties.
• Generally, the Hoffmans inherited or placed tenants in condominiums, received rent payments and then paid rent to third-party buyers to be applied as mortgage payments. The Hoffmans and others routinely remitted portions of these lease payments, often causing third-party buyers to be late in making their mortgage payments.
• The United States believes that the amount attributable to the defendants’ fraudulent activities is approximately $5.5 million.
While acknowledging that the appointment of a judicial receiver was an exceptional remedy, the court decided that it was appropriate at the time. the Hoffman The court found that there was a complex financial structure involving straw buyers and potentially legitimate businesses coexisting with fraudulent schemes and that a neutral party was necessary to manage the property because of the potential exposure of rents and foreclosures.
Like other injunctions, a defendant in an injunction under section 1345 is subject to contempt action if that injunction is violated. United States v. Smith502 F.Supp.2d 852 (D.Minn. 2007) (defendant found guilty of criminal contempt for withdrawing money from a bank account that was frozen pursuant to 18 USC § 1345 and placed under receivership).
If the defendant wins the lawsuit brought by the government under Section 1345, the defendant may be entitled to attorneys’ fees and costs under the Equal Access to Justice Act (EAJA). United States vs. Cacho Bonilla, 206 F.Supp.2d 204 (DPRK 2002). EAJA allows the court to award costs, fees, and other expenses to the prevailing private party in litigation against the United States unless the court finds that the government’s position was “substantively justified.” 28 USC § 2412(d)(1)(A). To be eligible for a fee award under the EAJA, the defendant must prove (1) that it is the prevailing party; (ii) that the Government’s position was not substantively justified; and (iii) there are no special circumstances that would render the arbitral award unfair; The fee application must be submitted to the court, supported by a detailed statement, within 30 days of the final award. Cacho BonillaAnd above.
Health care fraud attorneys, banking law firms, mortgage and securities fraud attorneys should be aware of the government’s authority under the Fraud Order Act. The ability of the federal government to bring a civil action to enforce the commission or imminent commission of federal health care fraud, bank fraud, securities fraud, and other offenses under Title 18 Title 63 of the United States Code, and to freeze a defendant’s assets could change the course of a case Significantly. While Section 1345 has not been used frequently by the federal government in the past, there is growing recognition by federal prosecutors that prosecutions of health care, bank mortgage, and securities offenses can be more effective when additional action under Section 1345 is instigated by the government. Health care and hospital attorneys, bank attorneys, mortgage and securities law firms must understand that when a defendant’s assets are frozen, the defendant’s ability to maintain the defense can be seriously compromised.
