United States: State AGs In The News - January 14, 2015

Consumer Protection

West Virginia AG Sues Drug Distributor

  • West Virginia AG Patrick Morrisey filed a lawsuit alleging that McKesson Corporation violated the state consumer protection and controlled substances acts, and committed unfair and deceptive acts or practices by distributing large quantities of highly profitable prescription pain medication to pharmacies throughout West Virginia, contributing to an epidemic of drug abuse in the state.
  • The eight-count lawsuit relies on a core theory of liability that McKesson, as a distributor, was "uniquely situated to perform due diligence in order to help support the security of controlled substances [it] delivered," and that McKesson failed to implement a system to identify and stop suspicious numbers of prescribed doses. The complaint specifically argues that McKesson distributed 99.5 million doses of hydrocodone and oxycodone to West Virginia consumers over a five-year period, and that it should have known, based on each pharmacy's population base, that the resulting oversupply could not have been purely for legitimate medical purposes.
  • In addition to restitution, disgorgement, and civil penalties of $5000 for each violation of the unfair and deceptive practices and consumer protection acts, AG Morrisey also seeks injunctive relief that would require McKesson to create a system for determining suspicious orders, and to submit that system to the state for prior approval.

FTC and Florida AG Add Payment Processor to Debt Relief Lawsuit

  • The Federal Trade Commission (FTC) and Florida AG Pam Bondi added CardReady, LLC, and its executive officers, to a debt relief lawsuit filed last July, alleging that CardReady substantially assisted the debt relief defendants in violating the FTC Act and Telemarketing Sales Rule (TSR).
  • The amended complaint, filed in federal court for the Middle District of Florida, alleges that CardReady facilitated credit card payments for the debt relief companies, helping them to continue to process payments even though they had been identified by credit card networks as not meeting underwriting criteria—either because of a high risk of illegal activity or a high rate of chargebacks. CardReady allegedly laundered those payments by routing them through shell companies it created before submitting them to the financial institution for processing, thus hiding the identity of the merchant for which it was processing payment.
  • In addition to the allegations of credit card laundering and factoring ("factoring" is a separate offense under Florida law), the FTC and AG Bondi charged CardReady with facilitating the deceptive and abusive acts that formed the alleged violation of the TSR by the debt relief defendants.

Data Privacy

States' Investigation Gestoppt-ed by German Privacy Laws

  • Highlighting an additional challenge faced by State AGs conducting international investigations, Volkswagen has allegedly refused to produce emails and other executives communications occurring in Europe to the State AGs investigating. Volkswagen has claimed that the German Federal Data Protection Act, or Bundesdatenschutzgesetz, and other European laws prevent the company from turning over the communications stored in Germany to investigators outside the E.U.
  • New York AG Eric Schneiderman and Connecticut AG George Jepsen, as lead counsel in the 48-state investigation, voiced frustration with Volkswagen's efforts, indicating that the company publicly claims to be cooperating with the investigation, but has not fulfilled what would otherwise be standard investigative requests under U.S. law. Yet, German law may require employee consent that comes from a "free decision" before an employer can access and transfer worker emails and other communications—even in connection to an internal investigation.

Antitrust

FCC Settles With Radio Station Over Sponsorship Silence

  • The Federal Communications Commission (FCC) reached an agreement with Cumulus Radio Corporation and its subsidiary Radio License Holding CBC, LLC to resolve the FCC's investigation into whether the radio station violated sponsorship identification laws.
  • The investigation stemmed from allegations that a New Hampshire radio station owned by Cumulus broadcast a series of announcements supporting a hydroelectric power project without properly identifying the sponsor of the announcements, which was a company financially connected to the project.
  • On entering into the consent decree with the FCC, Cumulus agreed to pay a penalty of $540,000 and to introduce a compliance plan for its 195 stations nationwide.

False Claims

Rehab Provider Settles FCA Suit for $125 Million

  • The Department of Justice (DOJ) reached an agreement with Kindred Healthcare, Inc., and subsidiaries RehabCare Group, Inc. and RehabCare Group East, Inc. (together, "RehabCare"), to resolve allegations that the rehabilitation therapy provider violated the False Claims Act by seeking Medicare reimbursement for unreasonable and unnecessary services.
  • The amended complaint alleged that RehabCare strategically scheduled its therapy services to achieve the highest level of Medicare reimbursements, without regard to patients' clinical needs, including: shifting minutes of planned therapy between different disciplines to ensure targeted amounts were achieved; planning higher amounts of therapy at the close of a measurement period to reach the threshold for a higher reimbursement level; and placing patients in the highest therapy category as a default, instead of using evaluations to match the patient with a proper level of care.
  • The complaint also alleged that RehabCare continued to schedule therapy even after treating therapists indicated that the patients had completed the necessary amount, and reported therapy services provided during a time when patients were either sleeping or otherwise unable to participate in the therapy.
  • RehabCare agreed to pay $125 million, and four nursing homes using RehabCare's services agreed to pay an additional $8.225 million, to resolve the lawsuit, which was brought in the District of Massachusetts under the name United States ex rel. Halpin and Fahey v. Kindred Healthcare, Inc. The two whistleblowers will receive a combined $24 million from the settlement.

Securities

SEC Makes Its New Year's Resolutions – ETFs and Liquidity Come Into Focus

  • The Securities and Exchange Commission (SEC) announced the agency's priorities for 2016, which it presented under the broad categories of protecting retail investors, assessing marketwide risks, and using data analysis to detect violations.
  • In Examination Priorities for 2016, the SEC identified 20 specific topics that the agency would focus on in 2016. The list included topics present in previous years' priorities, including advisors' fee arrangements and sales practices, as well as broker dealers' internal fraud and anti-money laundering controls. New to the agency's priorities for 2016 are the specific topics of Exchange-Traded Funds (ETFs) and Liquidity Controls. There is also a larger emphasis on cybersecurity.
  • For ETFs, the SEC indicated that it will be investigating whether they are operated in compliance with their "exemptive relief" applications, as well as the process used by each ETF for creating and redeeming shares.
  • On the topic of liquidity, the SEC indicated that it will focus on risk management, pricing, and redemption controls for ETFs and funds that deal in potentially illiquid securities. Some of the SEC's policy ideas on this topic—which have been criticized by industry groups—can be seen in the proposed rule on liquidity management published last fall.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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