United States: State AGs In The News - February 19th, 2016

Last Updated: February 26 2016
Article by Aaron R. Lancaster and Erik Lowe


West Virginia Senate Looks to Shield Hospital Merger From FTC Review

  • A West Virginia Senate committee has approved a bill that would address a disagreement between West Virginia AG Patrick Morrisey and the Federal Trade Commission (FTC) over whether a pending merger between two West Virginia hospitals would reduce competition. The bill, Senate Bill 597, is currently on its second reading in front of the entire Senate.
  • AG Morrisey cleared the merger last July, subject to conditions on rate setting, employee agreements, and exclusivity. The FTC, however,  challenged the merger in November and is awaiting an administrative hearing scheduled for April. Among other things, AG Morrisey and the FTC differ on how to define the market, with the FTC focusing on a three county geographic area, and the AG indicating that more than 60 percent of the patients for the two hospitals come from outside the three counties analyzed.
  • If enacted, the Bill would shield certain actions of hospitals and health care providers operating under the jurisdiction of the state health care agency from scrutiny under federal antitrust laws. Specifically, the Bill would allow the state health care agency to issue a Certificate of Need, permitting mergers of hospitals located within 25 highway miles of each other even if the FTC has determined that the merger would result in reduced competition.
  • A 2013 Supreme Court case is informative on the issue. In FTC v. Phoebe Putney Health System, Inc., a pair of merging Georgia hospitals argued that the state action immunity doctrine prevented the FTC from oversight in local healthcare markets. In that case, the Court ruled that the Georgia law "ha[d] not clearly articulated and affirmatively expressed a policy to allow hospital authorities to make acquisitions that substantially lessen competition." Thus, the merger was not insulated from FTC review.

Consumer Protection

New York AG Goes After Bad Reviews

  • New York AG Eric Schneiderman announced the settlement of four separate investigations into unrelated companies for allegedly posting, or encouraging the posting of, deceptive online reviews and endorsements in violation of N.Y. General Business Law §§ 349 and 350.
  • The facts underlying the investigations exhibited the many nuanced ways through which deceptive conduct can occur in this area:
    • Machinima, Inc., a video game social network, allegedly paid expert gamers on behalf of a third party to post videos in which they endorse a new gaming system and several new games. The AG argued that this endorsement method gave the appearance that the opinions were independent and unpaid.
    • Premier Retail Group, Inc., allegedly solicited online reviews from the public via Craigslist by offering free samples, free vouchers and other compensation in exchange for positive reviews. Premier did not require that the reviewer visit a Premier location or disclose that they were compensated.
    • ESIOHInternet Marketing allegedly paid individuals to post positive reviews on Google Places and Yelp in support of its small business clients. The AG indicated that ESIOH even offered advice to reviewers to avoid having their review tagged as suspicious by website filters.
  • In addition to modest monetary penalties, ranging from $50,000 to $20,000, the settlements order the companies to cease their involvement in activity that incents the creation of deceptive reviews, as well as to require that endorsers and reviewers prominently disclose any material financial connection with the company being reviewed.

FCC Fines Companies for Cramming and Slamming Spanish-Speaking Consumers

  • The Federal Communications Commission (FCC) announced that it will seek a penalty of $29.6 million from OneLink Communications Inc., and related telephone service resellers, alleging that the group placed unauthorized charges on consumer accounts ("cramming"), or switched consumers to higher-priced service providers without their consent ("slamming").
  • Notably, the FCC alleged that OneLink contacted consumers under the pretext of a (nonexistent) package waiting for them at their local U.S. Post Office. OneLink would ask the consumers to repeat a confirmation number or otherwise confirm that they would accept delivery of the package. When the consumers responded "yes," OneLink would allegedly record the consumers' response, and use it (inappropriately) to satisfy third-party verification requirements to authorize additional charges or a change in long-distance carrier.
  • OneLink continues to dispute the FCC's allegations, calling the whole process "fundamentally flawed and politically motivated."  OneLink has indicated it will "vigorously defend against the baseless claims, misrepresented factual circumstances and trumped-up fines."

Financial Industry

Money Transferor to Send Payment to State AGs

  • Texas AG Ken Paxton, and AGs from 48 states and the District of Columbia have settled their investigation into MoneyGram Payment Systems, Inc., for the money transfer service's role in connection to various online and telephone scams resulting in fraudulently-induced transfers of money.
  • The multistate investigation did not allege that MoneyGram actively participated in the scams, but rather that it failed to detect recurring scams, or to provide reasonable protections for consumers who were being actively deceived by third parties while at the same time generating revenue through fees based on the number and amounts of transfers made. For its part, MoneyGram did not admit that it violated any law.
  • In the Assurance of Voluntary Compliance, MoneyGram agreed to pay $13 million to the states for consumer redress and for investigative and legal costs. MoneyGram also agreed to implement a number of anti-fraud measures, including:
    • adopting a risk-based approach to verify the identities of senders and receivers;
    • enhancing consumer education efforts, including a conspicuous warning that identifies common fraud schemes directed at consumers;
    • requiring anti-fraud training for all transfer agents;
    • encouraging data sharing between MoneyGram and other money transfer companies regarding fraudulently-induced transfer activity; and
    • maintaining an internal list of individuals who have been previously involved with alleged fraudulently-induced transfer schemes.


Software Maker Runs Into FCPA Issues With Chinese Subs

  • The Securities and Exchange Commission (SEC) accepted an offer of settlement to resolve allegations that PTC Inc., violated the Foreign Corrupt Practices Act (FCPA) through improper payments made to induce business between the Chinese government and the Massachusetts-based software maker.
  • The SEC's allegations are connected to separate investigations into PTC's Shanghai and Hong Kong based subsidiaries, both of which admitted to using third-party agents to provide $1.5 million in gifts, nonbusiness related travel, and entertainment to officials at Chinese state-owned entities when the officials came to visit PTC's U.S. headquarters. The Chinese subs had indicated in their books that these were "commission payments" or "sub-contracting fees." The subsidiaries entered into non-prosecution agreements with the Department of Justice (DOJ).
  • Although PTC did not provide the payments directly, the SEC determined that, among other things, PTC failed to implement and maintain an adequate internal accounting control and recordkeeping compliance program required by Section 13(b)(2) of the Exchange Act.
  • The order requires PTC to pay $13.6 million in disgorgement and interest, while also acknowledging $14.5 million that PTC will pay to the DOJ under the non-prosecution agreements. The order also indicates that the SEC considered in a positive light, PTC's voluntary self-disclosure and subsequent remedial efforts, including the implementation of an enhanced compliance program and the termination of responsible employees and business partners.

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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