South Carolina

June 23, 2010

Fred’s Pharmacy Agrees to Pay Government $525,000 to Settle Allegations It Filled Improper Prescriptions and Failed to Report Thefts (U. S. Attorney for the District of South Carolina)

South Carolina - United States Attorney William N. Nettles, stated on June 23, 2010, that Fred’s Pharmacy has agreed to pay the government $525,000 in fines for its alleged failure to comply with federal regulations controlling the storage and dispensing of controlled substances.  Controlled substances are drugs that have a potential for abuse and may cause physical or psychological addiction.  They include narcotics, amphetamines and hypnotics.

In the Johnsonville Fred’s Pharmacy, the government alleged that Fred’s failed to keep controlled substances secure, failed to report thefts of controlled substances to the Drug Enforcement Administration (DEA), allowed an individual to accept call-in prescriptions for controlled substances without the appropriate state license, and filled fraudulent prescriptions for controlled substances.      

In the Kingstree Fred’s pharmacy, the government alleged that Fred’s Pharmacy also failed to report losses of controlled substances to the DEA and failed to properly maintain records regarding their receipt of controlled substances.  The recording requirements are vital to auditors being able to compare to the amount of controlled substances on hand to the inventory records so as to determine if any are missing. 

The applicable fines for the violations ranged from $10,000 to $25,000 per violation. Mr. Nettles stated, “Under the Controlled Substances Act, pharmacies play a critical role in prevention and detection of drug diversion.  DEA investigators rely on their cooperation and compliance with the regulations to assist them in the prosecution of individuals improperly diverting controlled substances.  Pharmacies must be held accountable when they fail to meet their obligations.”  

This matter was handled by Assistant U.S. Attorneys Jennifer Aldrich and Fran Trapp with the assistance of DEA Diversion Investigators.

March 2, 2010

Two Former Executives of Medical Manager Found Guilty in Securities Fraud Scheme (Criminal Division)

WASHINGTON - Two former executives of Medical Manager Health Systems Inc., (Medical Manager), a subsidiary of WebMD Corporation from 2000 to 2005, were convicted on March 2, 2010, by a federal jury in Charleston, S.C., with participating in a conspiracy to fraudulently inflate the reported earnings of Medical Manager by more than $16.8 million between 1997 and 2003, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division; Kevin F. McDonald, Acting U.S. Attorney for the District of South Carolina; David A. Thomas, Special Agent in Charge of the FBI’s Columbia Division; and Jeannine Hammett, Special Agent in Charge of the Charlotte, N.C., Field Office of the Internal Revenue Service (IRS) Criminal Investigation.

Former Medical Manager president John H. Kang, 46, of Trabuco Canyon, Calif., and former vice president and chief operating officer John P. Sessions, 67, of Myrtle Beach, S.C., were convicted of conspiracy to commit mail, wire and securities fraud. Kang and Sessions were charged in a second superseding indictment on Feb. 27, 2007, along with other executives of Medical Manager, for their roles in the fraudulent scheme.

“As the president and vice-president of their company, these defendants were supposed to lead their company with honor and integrity – instead, they orchestrated an elaborate accounting scheme meant to defraud investors about the financial success of their company,”said Assistant Attorney General Lanny A. Breuer of the Criminal Division.  “Corporate executives cannot decide to play by their own set of rules.The message is simple – obey the laws or face prosecution for your crimes.”

“This case will serve as a wake-up call to corporate executives who scheme to profit at the expense of shareholders and the investing public,” said Acting U.S. Attorney Kevin F. McDonald. “I am extremely proud of the dedication of the agents and attorneys who investigated and prosecuted this case.”

“The FBI is committed to rooting out securities fraud,” said FBI Special Agent in Charge David A. Thomas.“We will continue working with our partners to identify and stop those who line their own pockets at the expense of others.”

“Corporate fraud has crippling consequences for the American economy,” said IRS Special Agent in Charge Jeannine A. Hammett. “This verdict reflects the commitment of the law enforcement community to investigate and pursue allegations of wrongdoing, wherever they may occur, whether it be on our city streets or in our corporate suites.”

Kang and Sessions were convicted of conspiring to engage in fraudulent accounting practices intended to artificially inflate the quarterly revenues of Medical Manager in order to meet and exceed the expectations of financial analysts, and thus to fraudulently inflate the market price of Medical Manager stock and, after its acquisition by WebMD, that company’s stock. According to evidence presented during the nearly two-month trial, the conspiracy involved a number of fraudulent practices, including inflating the company’s revenue by engaging in “round-trip” sales with software dealers that Medical Manager was acquiring. Evidence at trial proved that the defendants participated in a scheme to inflate the purchase price for the companies that Medical Manager was acquiring in order to compensate these companies for the simultaneous purchase of Medical Manager software that Medical Manager compelled them to purchase as part of their acquisition.

Evidence presented at trial proved that the defendants also inflated Medical Manager’s revenue by causing companies acquired by Medical Manager to reclassify revenue they had already recognized - and thus already included in their earnings - as “deferred revenue,” which was not included in earnings. Once the books of the acquired companies were combined with those of Medical Manager, the conspirators recognized the deferred revenue again, thereby fraudulently increasing Medical Manager’s revenue and earnings. Kang and Sessions were also found guilty of causing companies Medical Manager was acquiring to fraudulently inflate their accrued liability accounts and reserves for various expenses before the financial statements of the target companies were combined with those of Medical Manager. Once the financial statements were combined, the conspirators caused Medical Manager to reverse those accrued liability accounts and reserves into earnings for Medical Manager.

Chief U.S. District Judge David C. Norton presided over the trial and will sentence the defendants at a later date. The maximum penalty for the conspiracy charge is five years in prison and a fine of $250,000, or twice the amount of pecuniary gain or loss resulting from the conduct.

Previously, in related cases, former Medical Manager executives Robert Davids, Kevin M. Kennedy, Glenn S. Moss, Patrick Sedlacek, William Kottage and Henry Holbrook each pleaded guilty for their roles in the scheme. Kennedy and Kottage also pleaded guilty to tax evasion. Also, on Jan. 11, 2010, Michael A. Singer, the former chief executive officer of Medical Manager, entered into a deferred prosecution agreement and agreed to forfeit $2.5 million.

Former corporate controller Charles L. Hutchinson, a/k/a Charlie Hutchinson, 41, of Tampa, Fla., and former associate general counsel Franklyn M. Krieger, a/k/a Frank Krieger, 46, of Tampa are both awaiting trial in this case. Hutchinson is scheduled for trial on May 17, 2010, and Krieger is scheduled to stand trial on Aug. 2, 2010. These cases were transferred from Charleston to Tampa by order of the court.

The case was prosecuted by Assistant U.S. Attorney Eric J. Klumb of the U.S. Attorney’s Office for the District of South Carolina, Assistant U.S. Attorney Jason H. Cowley of the U.S. Attorney’s Office for the Eastern District of North Carolina and Trial Attorney Jennifer R. Taylor of the Criminal Division’s Fraud Section. The case was investigated by agents of the FBI and the IRS.

December 15, 2009

Lexington Doctor Sentenced in Fraud Case, to Perform Community Service (U.S. Attorney for the District of South Carolina)

Columbia, South Carolina -- United States Attorney W. WALTER WILKINS stated on Dec. 17, 2009, that HORACE W. “BUTCH” BLEDSOE, JR., age 58, of Lexington, was sentenced to 36 months probation and ordered to perform 80 hours of community service today in federal court in Columbia.  BLEDSOE pled guilty October 15, 2009,  to Obtaining Testosterone by Fraud, a violation of Title 21, United States Code, Section 843(a)(3).  

Evidence presented at the change of plea hearing established that Bledsoe was a physician working at Lexington Medical Center’s Gilbert Family Practice.  On October 2, 2008, a patient was administered a partial dose of testosterone, a controlled substance, from a one-cc, single-dose vial.  According to hospital policy, the remaining testosterone was to be wasted or disposed of, and clinic records indicated that had taken place.  However, the leftover testosterone was actually delivered to Dr. Bledsoe’s office at his direction.  Some of the testosterone was for his own use, and some he gave to a medical assistant and other unidentified individuals.  By causing the falsification of the drug administration records, Dr. Bledsoe was able to conceal from the hospital this diversion of a controlled substance.  Similar activity took place on approximately twenty occasions between October 2008 and February 2009.  Bledsoe and several others who knew of this conduct were dismissed from Lexington Medical Center in February 2009, when this was discovered. 

The case was investigated by agents of the Drug Enforcement Administration.  Assistant United States Attorney Winston D. Holliday, Jr., of the Columbia office handled the case.

More information on the U.S. Attorney's Office for the District of South Carolina: http://www.justice.gov/usao/sc/

November 6, 2009

Columbia Brothers Barred from Billing Federal Health Care Programs -- Happy Teeth Dental Clinic Submitted False Medicaid Claims (U.S. Attorney for the District of South Carolina)

Columbia, South Carolina ---- United States Attorney W. Walter Wilkins stated today that Michael Ian Gibson and Richard James Gibson, both of Columbia, and their company Happy Teeth, LLC, have agreed pay the government $82,256 and have further agreed to be excluded from participation in any federal health care program for a period of 25 years.  This agreement settles allegations by the government that the Gibson brothers and Happy Teeth submitted Medicaid claims for services performed by dentist Angela Bailey McFadden, despite knowing she was barred as a Medicaid-authorized provider for failing to repay her federal student loans.  

The Gibson brothers operate the Club Level nightclub on Main Street in Columbia, and are not dentists.  They opened Happy Teeth at 2700 Broad River Road in June 2008. The Medicaid claims for Dr. McFadden’s dental services were submitted under another dentist’s name.  South Carolina Medicaid immediately suspended payment to Happy Teeth when it was notified of the billing scheme.  Federal agents searched the clinic in September 2008, and it was closed down soon afterwards.  Dr. McFadden and Karen Watson, Happy Teeth’s administrator and office manager, were both criminally prosecuted for their part in the scheme and received probation.

The United States initiated the investigation in response to a qui tam or whistleblower action brought by a former employee of Happy Teeth.  Such actions can be filed by whistleblowers on behalf of the United States.  Under the qui tam statute, the whistleblower who files a lawsuit bringing allegations of fraud committed against the government may be entitled to a share of the proceeds recovered by the suit and attorney fees.  These cases are initially filed under seal to allow the government to investigate the allegations.  The government may intervene and prosecute the case or decline and allow the whistleblower to pursue the case.  Because the government intervened and settled this case, the whistleblower will receive approximately $15,000 of the settlement amount.

Mr. Wilkins stated, “All health care providers have the responsibility not to bill any federal program or federally-funded program for the services provided by employees who are on the excluded list.”

The case was investigated by Special Agent Chris Lott of the U.S. Department of  Health and Human Services, Office of Inspector General and Investigator Jay Evans of the South Carolina Medicaid Fraud Control Unit.  Assistant United States Attorneys Jennifer Aldrich and Fran Trapp handled the case for the government.

More information on the U.S. Attorney's Office for the District of South Carolina: http://www.justice.gov/usao/sc/

July 24, 2009

Lexington Doctor, Office Assistant Charged With Fraud Related To Steroids (U.S. Attorney for the District of South Carolina)

U.S. Attorney W. Walter Wilkins stated on July 24, 2009, that Dr. Horace W. Bledsoe, Jr., age 58, of Lexington, and his medical office assistant, Amelia H. Beck, age 50, of Newberry, were charged in a three-count indictment with obtaining testosterone by fraud, a violation of Title 21, United States Code, Section 843(a)(3). Both formerly worked at the Lexington Medical Center in Gilbert. Federal investigators allege that between June 2008 and February 2009, the pair falsified records to indicate they were destroying unused amounts of synthetic testosterone, when in fact they were stealing it for Bledsoe's personal use.

The maximum penalty Bledsoe and Beck could receive is a fine of $250,000 and imprisonment for four years on each count.

Mr. Wilkins stated that the case was investigated by agents of the Drug Enforcement Administration, Diversion Unit, and that he has assigned the case to Assistant United States Attorney Winston D. Holliday, Jr., of the Columbia office for prosecution.