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Lowenstein Sandler LLP

Rachel Moseson

Rachel Moseson

Associate

Expertise

  • Litigation

WSG Practice Industries

Activity

Lowenstein Sandler LLP
New Jersey, U.S.A.

Profile

Rachel practices in the firm’s Litigation Department. She has experience advising on governmental and corporate investigations and working on white collar defense and complex commercial litigation teams. Rachel has participated in depositions and witness interviews, drafted investigation reports, conducted discovery, and drafted various motions and briefs. She is also committed to pro bono work and is passionate about representing domestic violence victims. Rachel also serves on the Executive Board of the firm’s Women’s Initiative Network (WIN).

During law school, Rachel worked as a teaching assistant in Legal Analysis, Writing, and Research and as a research assistant to Professor Douglas Eakeley. She was the senior commentaries editor of the Rutgers University Law Review. Additionally, Rachel’s article, “Bringing Dark Money to Light: Political Nonprofit Disclosure Statutes in Delaware and New Jersey,” was selected for publication in the Rutgers University Law Review Commentaries in 2017.

Rachel served as a judicial intern to the Hon. Stuart Rabner, Chief Justice of the Supreme Court of New Jersey. She also worked as an intern in the U.S. Attorney’s Office for the District of New Jersey.

Prior to the law, Rachel worked for the Related Companies in New York, assisting on a variety of projects involving Hudson Yards and helping to coordinate the company’s political fundraising activities. In addition, she worked for U.S. Senator Frank R. Lautenberg, where she assisted in managing outreach to hundreds of regional constituents and handled an extensive caseload involving the Department of Veterans Affairs and Department of Defense.

Bar Admissions

    New Jersey

Education

Rutgers Law School (J.D. 2018); senior commentaries editor, Rutgers University Law Review
Rutgers University (B.A. 2012), summa cum laude
Professional Career

Significant Accomplishments

Represented Rutgers University in conducting a highly publicized internal investigation involving allegations of physical and emotional abuse by softball coaches; findings were published in a report containing recommendations subsequently adopted by the university.

Successfully defended a family-owned company against claims brought by an intervening plaintiff in a business divorce case. Summary judgment was granted on all claims brought by the intervener against our client.


Articles

“Titanic.” We’ve all seen it and enjoyed watching the ill-fated love affair between Rose and Jack develop during the course of an over-length movie. We watched Rose grapple with the tough decisions between living up to others’ expectations and following her heart. We rooted Rose on as she decided to spurn her high-society fiancé and defy her mother to be with her true love. And, in a true Hollywood twist of fate (spoiler alert!), we watched in horror as Rose’s happiness is shattered when Jack slowly sinks to the bottom of the ocean.


However, the most compelling scene of the movie takes place at the very end, when the camera pans Rose’s room and we see that, after she survived the Titanic and lost the love of her life, Rose went on to live a full life. She married and had children, who gave her beautiful grandchildren. She learned to ride a horse even though Jack was not there to teach her. And Rose likely refined her spitting technique to be truly award worthy (and note, we did not say “like a man”). In other words, Rose experienced a number of highs and lows in her life. She faced many difficult decisions and things didn’t always work out the way she expected or wanted, but she kept moving forward.

The federal health care Anti-Kickback Statute (Federal AKS) targets bribery and corruption in the health care industry. There are two core provisions of the Federal AKS: one targeting the bribe recipient and one targeting the bribe payer. Specifically, the statute prohibits receiving “any remuneration . . . in return for” health care referrals or purchases reimbursable under a federal health insurance program, such as Medicare.[1] And it prohibits paying any remuneration “to induce” health care referrals or purchases reimbursable under such a federal program.[2]


The Federal AKS is an incredibly far-reaching law giving federal enforcement agencies an arsenal of weapons to target questionable business arrangements in the health care industry. The term “remuneration” is defined open-endedly to mean “anything of value.”[3] And “anything of value” means just that: There is no de minimis remuneration under the Federal AKS.[4] To prove a violation of the statute, the government need only demonstrate that one of the many possible purposes of paying remuneration was the inducement of the purchase of the federally reimbursable goods or services.[5] Additionally, courts generally will not engage in a “splitting of hairs” when it comes to discerning the meaning of words such as “refer” and “recommend,” relying instead on the broad, prophylactic purposes of the statute.[6] Also, the plain language of the Federal AKS suggests that a quid pro quo is unnecessary for a payer of remuneration (i.e., a bribe payer) to violate the statute, raising the possibility that a health care company, provider, or individual could violate the statute simply by paying money to induce product usage, even if the recipient has not agreed to use the product in return for the money (i.e., even if the recipient of the “bribe” does not know he or she is being bribed).[7]


Given the expansive reach of the Federal AKS, there are a number of statutory and regulatory exceptions and “safe harbors” to the law. For example, the statute’s restrictions do not apply to “a discount or other reduction in price” if a number of requirements are met.[8] Likewise, “bona fide employment relationship[s]” are insulated from the statute’s prohibitions,[9] as are “personal services and management contracts,”[10] as well as formal “referral services.”[11] But even these safe harbors typically have numerous and cumbersome requirements, and if each such requirement is not strictly met, the conduct is subject to criminal prosecution or other enforcement measures.


Compliance with the Federal AKS is something of an industry unto itself, but the federal statute represents only part of the risk for health care companies, providers, and individuals. All but one of the 50 states, as well as the District of Columbia, have analogous commercial bribery laws on the books that target corruption in the health care industry.[12] And of these 51 jurisdictions, 35 proscribe kickbacks and the like in the health care industry even if the goods or services are reimbursable only by private health insurance and involve no public money at all. These additional state laws and regulations thus often reach far beyond their federal counterpart.  Accordingly, any complete and fulsome analysis of an individual’s or entity’s anti-kickback exposure necessarily requires separate consideration of these state law analogues. 


Access the State Health Care Anti-Kickback Analogues survey.




 


[1] 42 U.S.C. § 1320a-7b(b)(1).
[2] 42 U.S.C. § 1320a-7b(b)(2).
[3] E.g.United States v. Narco Freedom, Inc., 95 F. Supp. 3d 747, 756 (S.D.N.Y. 2015) (citing Klaczak v. Consol. Med. Transp., 458 F. Supp. 2d 622, 678 (N.D. Ill. 2006)).
[4] See Medicare and State Health Care Programs: Fraud and Abuse; Revisions to the Safe Harbors Under the Anti-Kickback Statute and Civil Monetary Penalty Rules Regarding Beneficiary Inducements, 81 Fed. Reg. 88368, 88379 (Dec. 7, 2016) (“[T]he anti-kickback statute does not have any exceptions for items or services of nominal value.”); Medicare and State Health Care Programs: Fraud and Abuse; OIG Anti-Kickback Provisions, 56 Fed. Reg. 35952, 35954 (July 29, 1991) (rejecting commentators’ call for de minimis safe harbor).
[5] See, e.g.United States v. Nagelvoort, 856 F.3d 1117, 1130 (7th Cir. 2017); United States v. Borrasi, 639 F.3d 774, 781-82 (7th Cir. 2011); United States v. Kats, 871 F.2d 105, 108 n.1 (9th Cir. 1989); United States v. Greber, 760 F.2d 68, 71-72 (3d Cir. 1985); Polk County v. Peters, 800 F. Supp. 1451, 1455-56 (E.D. Tex. 1992) (holding that an agreement by a hospital to give a doctor an interest-free loan in exchange for the doctor’s exclusive use of the hospital for his patients was illegal and thus unenforceable, notwithstanding that “the hospital may well have been motivated to a greater or lesser degree by a legitimate desire to make better medical services available to the community”).
[6] United States v. Polin, 194 F.3d 863, 866 (7th Cir. 1999) (upholding conviction of defendants operating a pacemaker monitoring company who offered to pay a pacemaker sales representative to direct patients to the company, even though the sales representative was not the ultimate decision-maker on which company was selected to monitor the pacemaker); see also United States v. Patel, 778 F.3d 607, 612-16 (7th Cir. 2015) (rejecting a doctor-defendant’s argument that a “referral” cannot by definition occur when a patient “independently chooses a provider” without any “input from the physician,” reasoning that the purpose of the statute extends the meaning of “referral” to the doctor-defendant’s certifications and recertifications of medical necessity for services provided by a home health care service that was paying him kickbacks); cf. OIG Advisory Op. No. 99-8, July 13, 1999 (referring loosely to new patients of podiatrists obtained as a result of free screenings at shoe stores as “referrals”).
[7] See Hanlester Network v. Shalala, 51 F.3d 1390, 1397 (9th Cir. 1995); Vana v. Vista Hosp. Sys., Inc., No. 233623, 1993 WL 597402, at *7 (Cal. Super. Ct. Riverside Cty. Nov. 15, 1993) (finding that an agreement can be unlawful even if only one party has the improper intent).
[8] 42 U.S.C. § 1320a-7b(b)(3)(A); 42 C.F.R. § 1001.952(h).
[9] 42 U.S.C. § 1320a-7b(b)(3)(B); 42 C.F.R. § 1001.952(i).
[10] 42 C.F.R. § 1001.952(d).
[11] 42 C.F.R. § 1001.952(f).
[12] Some of these are arguably even more onerous than the federal law. E.g., N.J. Admin. Code § 13:45J-1.3(c) (prohibiting a physician from accepting from a pharmaceutical company “any item of value that does not advance disease or treatment education,” including “pens, note pads, clipboards, mugs, or other items with a company or product logo, [as well as] floral arrangements”).

In the weeks and months since COVID-19 effectively brought many sectors of the U.S. economy to a screeching halt, numerous major retailers, recreation and travel companies, grocery chains and restaurants have filed for bankruptcy, in addition to an untold number of small businesses and individuals in economic distress.

Most analysts and industry professionals believe that the filings to date are just the tip of the iceberg. Companies and individuals considering bankruptcy, or those already in bankruptcy, must be mindful of one its central tenets: transparency.  

Bankruptcy policy requires near-complete transparency with respect to companies' business decisions and financial transactions leading up to filing and gives parties in interest broad investigatory rights related to the debtor.

When directors and officers have taken actions that devalued the company, creditors who are likely to receive pennies on the dollar are highly incentivized to scrutinize every act or omission by directors and officers — particularly in the time period leading up to the company's bankruptcy filing — for indicators of civil fraud. Recovery of assets that may have been transferred fraudulently benefits the creditors, as it increases the pool of assets to be distributed among them.

Federal prosecutors are likewise directed to evaluate criminal bankruptcy fraud both as an independent charge and as an additional charge against defendants already charged with other financial crimes, like securities fraud or tax evasion, or crimes related to corruption.

Indeed, the U.S. Department of Justice published a bulletin in 2018 encouraging prosecutors to pursue bankruptcy fraud charges when they will either reflect the "nature and extent" of the defendant's criminal conduct or otherwise "significantly strengthen the case" against the defendant.[1]  

Below, we explore the hallmarks both of civil and criminal bankruptcy fraud — of which both creditors and debtors should be aware, delineate gray area between the two and compare the penalties associated with each.

While we focus on corporate bankruptcies, individual consumers that seek bankruptcy protection under Chapter 7 or Chapter 13 of the Bankruptcy Code should likewise be aware of decisions and activities that may derail their filings or expose them to criminal prosecution.[2]

Civil Fraud

When large corporations file for bankruptcy, there are frequently many creditors vying to collect whatever assets will be available either through a straight liquidation under Chapter 7 or after a sale or reorganization process under Chapter 11. In Chapter 11 proceedings, the United States Trustee Program will appoint a committee of unsecured creditors, generally composed of creditors holding the largest unsecured claims against the debtor.[3] The committee and its members are statutorily charged with a fiduciary duty to protect the interests of all unsecured creditors.

Rule 2004 of the Federal Rules of Bankruptcy Procedure vests the committee and other stakeholders with broad powers to "investigate the acts, conduct, assets, liabilities, and financial condition of the debtor, the operation of the debtor's business and the desirability of the continuance of such business and other matter relevant to the case of the formulation of a plan."[4]

Committees are tasked with securing the best possible outcomes for unsecured creditors — which are typically among the last parties in interest to be paid under the Bankruptcy Code's priority scheme — and are therefore incentivized to use their investigatory powers to consider every action taken by the debtor in the lead-up to the filing under a magnifying glass. The question becomes, what are committees looking for and why?

Certain financial decisions or transactions executed by a company prior to or during a bankruptcy case, which extract value from the company leaving the debtor with fewer assets from which creditors can be paid, may be set aside or avoided by the committee.[5]

A committee examines the conduct of the debtor to look for evidence of, among other things, constructive or actual fraudulent transfers, and presents challenges to the debtor's conduct with the goal of having the subject transfers or transactions avoided, and the value of those transactions thereby recouped to the estate for distribution to creditors.

A constructive fraudulent transfer occurs when the debtor transfers an interest in property or incurs an obligation "within two years before the date of the filing of the petition"[6] if the debtor:


(1) "Received less than a reasonably equivalent value in exchange," and (2) (a) was already insolvent or became insolvent because of the transfer or obligation; (b) engaged "or was about to engage in business or a transaction for which" the debtor's remaining property was unreasonably small capital; or (c) intended to or believed it would incur debts beyond its ability to pay.[7]


Constructive fraudulent transfers do not require malicious intent by the debtor and can even occur unintentionally. For example, if, while insolvent, a company engages in a prepetition sale of an asset for less than what is ultimately determined to be reasonably equivalent value — that is, if the sale was an unfair exchange for the debtor — that would constitute a constructive fraudulent transfer.


In practice, while these transfers are subject to avoidance and the estate's recovery of the value of such transfer, they generally do not result in sanctions against the debtor. Meanwhile, an actual fraudulent transfer occurs when the debtor transfers an interest in property or incurs an obligation with "actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted."[8]


Generally, fraudulent transfers are avoided or unwound, either by the committee or the trustee, and the value of the transfer is recovered and added back to the debtor's assets. If the committee suspects that the debtor is engaging in more widespread misconduct, as opposed to concern about a particular transaction, there are additional remedies that can be pursued, including appointment of a trustee or examiner.

Standing alone, the fact that a debtor may have fraudulently conveyed assets is not per se criminal; the line between civil and criminal acts in the bankruptcy space hinges on the question of intent.   

Criminal Fraud

Prosecutors are generally alerted about the potential of bankruptcy fraud through referrals from the U.S. Trustee Program, or USTP, which has a statutory duty to report any potentially criminal activity during or related to bankruptcy filings to the United States Attorney's Office.[9]

In 2018, the USTP sent 2,257 bankruptcy and related criminal referrals to federal prosecutors and law enforcement agencies.[10] The overwhelming majority of those referrals (54.6%) were actually for tax fraud; bankruptcy fraud came in third, with 426, or 18.9% of referrals.[11]

The latter category of fraudulent transfers discussed above — those undertaken with the actual intent to defraud — may be prosecuted under the federal criminal code. This intentionality is where the line is drawn between civil fraud — which can be either intentional or unintentional, and either actual or constructive — and criminal bankruptcy fraud.

Prosecutors look for evidence that a defendant knowingly and fraudulently misrepresented material facts before, in the course of, or after bankruptcy proceedings. Bankruptcy fraud is most frequently prosecuted under Title 18, Chapters 152 and 157.[12]

Chapter 152 focuses on fraudulent actions, including intentional concealment of assets, destruction of records, falsification of documents, fraudulent transfers of property or obligations, and perjury, among other things. Chapter 157 focuses on fraudulent statements and provides that any person who "devised or intend[ed] to devise a scheme or artifice to defraud and for the purpose of executing or concealing such a scheme or artifice or attempting to do so" made "a false or fraudulent representation, claim, or promise" related to a bankruptcy filing, whether undertaken before or after filing for bankruptcy protection.

Prosecutions solely for bankruptcy fraud are rare but do occur from time to time. More frequently, criminal charges for bankruptcy fraud are pursued when a prosecutor believes the charges will either demonstrate the nature and extent of the defendant's other criminal conduct or significantly strengthen the case against the defendant in some other way.[13] 

Moreover, the defendant's intent is key to sentencing.

For example, in one celebrity bankruptcy case out of New Jersey, after filing for bankruptcy in 2009 and claiming approximately $11 million in debt, Joe and Teresa Giudice of "The Real Housewives of New Jersey" fame were indicted in 2013 on 39 counts — including conspiracy to commit wire and mail fraud, bank fraud, loan application fraud and bankruptcy fraud — for concealing assets during their bankruptcy filing and for continuing to submit fraudulent documents to the court even during the course of their own prosecution.

Teresa Giudice was sentenced to 15 months in federal prison and Joe Giudice was sentenced to 41 months.[14]

This kind of active concealment and purposeful, knowing misrepresentation of a debtor's assets draws the line between civil and criminal bankruptcy fraud. Constructive fraudulent transfers and other avoidable conveyances are typically not concealed; indeed, they are frequently uncovered and dealt with in the normal course of disclosure and discovery during bankruptcy proceedings.

But where a debtor conceals or attempts to shield the assets they possess, they pervert the bankruptcy process and they exploit the protection it is meant to provide debtors in financial distress — and that exploitation is criminal.

Whatever the situation, awareness of the need for transparency and the other hallmarks of fraud are key to successful restructurings and liquidations. It is critical both for corporations and individual consumers to be aware of these standards whether they are leading up to, within, or past the period of bankruptcy filing, especially since certain types of civil fraud do not require intent.

While the vast majority of bankruptcy fraud is disposed of by committees and trustees in the civil context, criminal actions are possible where debtors' actions are intentional.


Reprinted with permission from the June 10, 2020, issue of Law360. © 2020 Portfolio Media, Inc. All Rights Reserved. Further duplication without permission is prohibited. 


To see our other material related to the pandemic, please visit the Coronavirus/COVID-19: Facts, Insights & Resources page of our website by clicking here.



[1] Charles R. Walsh, Why is a Bankruptcy Charge Valuable to Any Investigation?, 66 Bankruptcy & Bankruptcy Fraud 131 (March 2018), https://www.justice.gov/usao/page/file/1046201/download.

[2] Conduct that may except certain categories of fraudulently-obtained debts (or debtors themselves) from discharge under the Bankruptcy Code is beyond the scope of this article.

[3] 11 U.S.C. § 1102(a), (b)(1).

[4] 11 U.S.C. § 1103(c)(1)-(3).

[5] See 11 U.S.C. § 550(a). Although the Bankruptcy Code provides the trustee, or a debtor-in-possession with avoidance powers, since company management is not often incentivized to initiate proceedings that highlight its own misconduct, in many cases, committees seek and obtain standing to bring such actions.

[6] 11 U.S.C. § 548(a)(1). Certain states may provide for longer "look-back" periods.

[7] 11 U.S.C. § 548(a)(1)(B).

[8] 11 U.S.C. § 548(a)(1)(A).

[9] 28 U.S.C. § 586(a)(3)(F).

[10] DOJ Executive Office for U.S. Trustees, Report to Congress: Criminal Referrals by the United States Trustee Program Fiscal Year 2018 (May 2019), https://www.justice.gov/ust/file/criminal_report_fy2018.pdf/download.

[11] Id.

[12] 18 U.S.C. §§ 152, 157.

[13] Walsh, supra note 1, at 131.

[14] Misty Carter, CFE, CIA, The Fraud Examiner: Falsely Pleading Poverty: A Look at Bankruptcy Fraud, Association of Certified Fraud Examinershttps://www.acfe.com/fraud-examiner.aspx?id=4294994439 (last visited June 4, 2020).



 


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