Health care, banking / mortgage fraud, and practicing securities fraud should be aware of 18 U.S.C. Section 1345, a law permitting the federal government to file a civil lawsuit to intervene in the Commission or the impending transfer of a federal health, bank mortgage, security, and other offense under section 18, Chapter 63. Otherwise known as the federal state concerning failure to grant grants, it also authorizes a court to freeze the assets of individuals or entities that have acquired property as a result of past or ongoing federal bankruptcy, health care, securities or other covered federal violations. This regulatory authority to curb 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 its fraud pursuit of health and hospital care, bank mortgages and securities, but when a lawsuit is brought by the government, it can have a huge impact on the outcome of such cases. Lawyers in health and hospital care fraud, bank and mortgage fraud lawyers, and securities fraud lawyers must understand that when a defendant’s assets are frozen, the defendant’s ability to maintain a defense can be fundamentally impaired. The White Collar criminal defense attorney should advise his health and hospital care, bank loans and securities clients that parallel civil litigation can be instituted by federal prosecutors at the same time as a criminal case involving one of the covered offenses.
Section 1345 authorizes U.S. Attorney General to initiate a civil case in any federal court to file a person from:
• violating or about to violate 18 U.S.C. Sections 287, 1001, 1341-1351 and 371 (involving a conspiracy to defraud the United States or any agency thereof)
• commits or is in violation of banking law; or
• commits or is in the process of committing a federal health violation.
Section 1345 further provides that U.S. The Attorney General may obtain an injunction (without bond) or restraining order prohibiting a person from alienating, withdrawing, transferring, removing, distributing or disposing of property obtained as a result of a bank offense, securities violation or federal health or property infringement which can be traced to such a violation. The court shall immediately hear and determine any such action and may enter into such a restraining order or prohibition or take such other action as may be warranted to prevent continued and material harm to the United States or any person or class of persons , if the protection case is brought. Generally, a proceeding under section 1345 is governed by the federal rules of civil procedure, except when an indictment has been returned against the defendant, where such discovery is governed by the federal rules of criminal procedure.
The government successfully invoked section 1345 of the federal health care case United States v. Bisig et al., Civil Action No. 1: 00-cv-335-JDT-WTL (S.D.In.). The case was initiated as a qui tam by a relator, FDSI, which was a private company involved in the detection and prosecution of false and incorrect billing practices involving Medicaid. SDSF was hired by the state of Indiana and gained access to Indiana’s Medicaid billing database. After investigating the co-defendant Home Pharm, FDSI filed a qui tam case in February 2000 pursuant to Civil False Claims, 31 U.S.C. §§ 3729 et seq. The government soon joined the FDSI investigation of Home Pharm and Ms. Bisig, and in January 2001, the United States brought a case under 18 U.S.C. § 1345 to participate in the ongoing criminal fraud and freeze the assets of Home Pharm and Peggy and Philip Bisig. In 2002, a charge was returned against Bisig and Home Pharm. In March 2003, a damages lawsuit was brought in the criminal prosecution indicting Ms. Bisig and / or Home Pharm with four evidence of violation of 18 U.S.C. § 1347, a count of unlawful payment of kickbacks in violation of 42 U.S.C. § 1320a-7b (b) (2) (A) and a record of mail fraud in violation of 18 U.S.C. § 1341. That indictment also alleged a criminal charge of forfeiture of certain property by Ms. Bisig and Home Pharm were forfeited to the United States under 18 U.S.C. § 982 (a) (7). Under her guilty plea to the agreement, Ms. Bisig agreed to forfeit various pieces of real and personal property acquired by her personally under her scheme, as well as the assets of Home Pharm. The United States seized about $ 265,000 from the injunction and recovered about $ 916,000 in property lost in the criminal act. The court found that the relator could participate in the proceeds of the recovered assets because the relator’s rights in the forfeiture case were governed by 31 U.S.C. § 3730 (c) (5), which provides that a relator maintains the “same rights” in an alternative proceeding as it would have had in the quam proceeding.
A key issue when invoking § 1345 is the extent of the assets that can be frozen. Under section 1345 (a) (2), property or earnings from a false birth health, bank, or security violation 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 (6th Cir. 1993); United States v. Fang, 937 F. Supp. 1186, 1194 (D.Md. 1996) (any asset to be frozen must in any way be traced to the alleged illegal activity); United States v. Quadro Corp., 916 F. Supp. 613, 619 (E.D. Texas. 1996) (the court may only freeze assets that the government has found to be related to the alleged scheme). While the government may be able to seek treble damages against a defendant under civil fraud claims, the magnitude of treble damages and civil monetary penalties does not determine the amount of assets that can be frozen. Again, only the proceeds can be traced to the criminal offense, which can be frozen under the statute. United States v. Sriram, 147 F. Supp.2d 914 (N.D.Il. 2001).
The majority of courts have found that injunctive relief under the statute does not require the court to perform a traditional balancing analysis pursuant to Rule 65 of the Federal Rules of Civil Procedure. Id. No evidence of irreparable harm, inadequacy of other remedies or balancing of interests is required because the fact that the statute was passed implies that violation will necessarily harm the public and should be limited when necessary. Id. The government need only prove by a consideration of the standard of proof that an offense has occurred. Id. However, other courts have balanced the traditional injunctive relief factors when facing a case 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 movant in the absence of relief, (2) the balance between that injury and the harm that the relief will cause to the other defendants, (3) the likelihood of the movant’s ultimate success at the benefits and (4) the public interest, and the moving bear the burden of proof for each factor. Id.; United States v. Williams, 476 F. Supp2d 1368 (M.D.Fl. 2007). No single factor is decisive, and the primary question is whether balance of stock so favors the moving that justice requires the court to intervene to maintain the status quo until the profits are determined. If the threat of irreparable harm to the movable is small compared to probable harm to the other party, the movant bears a particularly heavy burden of exhibiting a likelihood of success on the merits. Id.
IN Hoffman In the case, the government presented evidence of the following facts to the court:
• As of June 2006, Hoffman defendants created units to purchase apartment buildings, convert them into condominiums, and sell individual condos for a substantial profit.
• To fund the venture, Hoffman defendants and other misleading mortgage loans obtained from financial institutions and third-party mortgage lenders, and Hoffmans instructed third-party buyers to partner with mortgage brokers to apply for mortgage loans.
• The loan applications used contained several material false statements, including inflation of buyers’ income and bank account balance, failure to list other properties purchased at or near the time of the current property, failure to disclose other mortgage or liability loans and false characterization of the source of disbursement provided at closing
• The Hoffman defendant used this method from January to August 2007 to purchase over 50 properties.
• Generally inherited or placed Hoffman’s tenants in the condominium units, received their rent payments, and then paid the rent to third-party buyers to be used as mortgage payments. Hoffmans and others routinely diverted portions of such rental payments, often causing third-party buyers to become delinquent over mortgage payments.
• The United States believes that the amount that can be traced to defendants’ fraudulent activities is approx. $ 5.5 million.
While the court recognized that the appointment of a beneficiary was an extraordinary remedy, the court ruled that it was appropriate at the time. the Hoffman the court found that there was a complex financial structure involving straw buyers and a possible legitimate business coexisting with fraudulent schemes and that a neutral party was needed to manage the properties due to the potential for rental foams and forced auctions.
Like other injunctions, the defendant subject to an injunction under section 1345 is subject to a contempt procedure in the event of a violation of such an injunction. United States v. Smith, 502 F. Supp. 2d 852 (D.Minn. 2007) (defendant found guilty of criminal contempt for withdrawing money from a bank account frozen under 18 U.S.C. § 1345 and located under a beneficiary).
If the accused wins in a case brought by the government under section 1345, the accused may be entitled to legal fees and costs under the Equal Access to Justice Act (EAJA). United States v. Cacho-Bonilla, 206 F.Supp.2d 204 (D.P.R. 2002). EAJA allows a court to award costs, fees and other expenses to a ruling private party in lawsuits against the United States, unless the court finds that the government’s position was “substantially justified.” 28 U.S.C. § 2412 (d) (1) (A). To be eligible for a tax award under the EAJA, the defendant must establish (1) that it is the ruling party; (2) that the government’s position was not materially justified; and (3) that no particular circumstance renders an award unfair; and the fee application must be filed with the court, supported by a specified statement, within 30 days of the final verdict. Cacho-Bonilla. supra.
Lawyers in healthcare, banking and mortgage fraud law firms, and securities fraud lawyers must be aware of government authority under the Statute of Fraud Extension. The ability of the federal government to file a civil case to intervene in or pending federal health care, bank fraud, securities and other violations under Chapter 63 of Title 18 of the US Code, and to freezing the Defendant’s assets can dramatically change the course of a case. Although section 1345 has previously been rarely used by the federal government, there is a growing recognition by federal prosecutors that prosecutions involving health, bank loans and securities offenses may be more effective when a supplemental action under section 1345 is initiated by government. Lawyers in health and hospital care, banking and mortgage lawyers and securities law firms must understand that when a defendant’s assets are frozen, the defendant’s ability to maintain a defense can be very impossible.