Auto Czar Settles with SEC for $6.2 Million over Kickback Scheme

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Got Caught in New York State Pension Fund Kickback Scheme

The former Obama administration official charged with overseeing the restructuring of the auto industry has agreed to settle with the SEC on kickback charges involving New York state pension funds. Under the terms of the settlement, Steven L. Rattner has agreed to pay a fine of $6.2 million for violating the Martin Act, a state securities law.

Rattner was accused of paying Hank Morris, an aide to former state comptroller Alan G. Hevesi, for his help in securing business from the $135 billion fund. Morris pleaded guilty earlier this month to providing illegal access to the fund.

Rattner’s former firm, Quadrangle Group, settled with authorities in April over hiring Morris to get access to the pension fund. The firm paid the SEC a penalty of $12 million and, as part of its settlement, acknowledged Rattner’s actions were “inappropriate, wrong and unethical.” A lawyer for Rattner disputed the wording of the firm’s acknowledgement.

The SEC also charged Rattner with providing special favors to the brother of a senior pension fund official. The brother, a Hollywood producer, was helped by Rattner in securing distribution of a low-budget film called Chooch, through a DVD company owned by Quadrangle. Rattner also helped the brother secure a deal with IFC, a cable outlet partly owned by Quadrangle. Rattner was also a member of IFC’s board of directors.

Officials also accused Rattner of funneling $50,000 in campaign contributions to Hevesi’s reelection campaign for state comptroller through third parties to conceal the true identity of the donor. After making the illegal donations, Quadrangle’s state pension monies under management increased from $100 million to $150 million.

In a separate action Thursday, New York attorney general and governor-elect Andrew Cuomo sued Rattner over the same activities, seeking at least $26 million in fines and a lifetime ban from the New York securities industry. Rattner had been in settlement discussions with the attorney general’s office, and last month rejected a settlement offer of $20 million from Cuomo.

“While settling with the SEC begins the process of putting this matter behind me, I will not be bullied simply because the Attorney General’s office prefers political considerations instead of a reasoned assessment of the facts,” Mr. Rattner said in a statement. “This episode is the first time during 35 years in business that anyone has questioned my ethics or integrity—and I certainly did not violate the Martin Act. That’s why I intend to clear my name by defending myself vigorously against this politically-motivated lawsuit.”

Before founding Quadrangle, Rattner was a reporter for The New York Times and went on to become an investment banker for Lazard in New York. When he was appointed to the auto czar post in February 2009, he listed his net worth on federal disclosure firms as between $188 million and $608 million.

Wall Street Journal

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San Fran School Top Officials Caught Stealing, They Call Kickbacks “Bonuses”

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The San Francisco Unified School District appears to be the latest district to be hit by an internal financial scandal. The Bay Citizen reported that it obtained records under a California Public Records Act request showing high-level officials used community-based organizations over which they had control, to routinely funnel back tens of thousands of dollars to supplement their district salaries.

At the center of the investigation are Associate Superintendent Trish Bascom, the former head of Student Support Services, and four of her coworkers. Until her retirement in June 2010, Bascom had control over a $20 million annual budget which was used to hire community organizations which provided services to the school district.

Documents show that Bascom had authorized payments from various community organizations to herself and four individuals that were Student Support Services administrators. In one example, Linda Lovelace, a former administrative analyst, received payments of $26,126 during the 2009-2010 school year from Bay Area Community Resources, an outfit that runs after-school programs for the district. The unauthorized payment was on top of her $83,000 annual salary.

Last May, Lovelace also received a check for $40,000 from Edgewood Center for Children and Families, a San Francisco non-profit agency that provides mental health, violence prevention and teacher coaching services to the district. According to her termination letter, Lovelace also falsified time records claiming she had regularly worked 12 hour days, and routinely signed documents and submitted claims without official authorization.

Bascom’s lawyer, Stuart Hanlon, acknowledged that the payments were authorized by Bascom, but characterized them as bonuses. “If they want to call it stealing, they can,” he said. “I would call the district incompetent. It wasn’t stealing. It was paying people bonuses for hard work.”

The Bay Citizen

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Another Detroit Official Pleads Guilty to Bribery

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A former aide to disgraced Detroit Mayor Kwame Kilpatrick pleaded guilty in federal court of paying a kickback in connection with a political favor involving the selection of an investment firm for one of the city’s pension funds. Marc Andre Cunningham, 41, said that he paid at least $15,000 to the relative of a city official as a reward for the official’s support in helping a venture capital firm make a deal with the Detroit General Retirement System.

In 2006, while Cunningham was employed as a consultant to the investment firm, Syncom Funding, he helped secure a $30 million investment account for the firm from one of the city’s retirement funds. After the deal was approved by the city, Cunningham received a $300,000 commission for his efforts. Read more

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Drug Giant Offers Secret Kickbacks on Costly Drug, Rips off Medicare

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$2,000 Per Dose or $20 for Avastin

Genetech, the biotech drug firm owned by Swiss pharmaceutical conglomerate Hoffman-LaRoche, has begun offering a secret incentive deal to doctors in order to get them to use a costly eye treatment, instead of an inexpensive alternative drug. The new program began on Oct. 1 and is by invitation only to specialty medical practices that are large purchasers of Lucentis, used to treat macular degeneration.

According to The New York Times, the program is designed to incentivize physician customers who purchase the drug Lucentis, rebates which can add up to tens of thousands of dollars per year. Rebates are not illegal if certain guidelines are strictly adhered to, and are sometimes offered for other drugs.

What’s unusual in the arrangement is the availability of another drug, Avastin, which is commonly used by physicians for treating the same condition, which occurs mostly in older patients. Both drugs are made by Genetech and use the same mode of action, although Avastin has only been approved by the FDA for certain types of cancer. The eye-specialists who use it are doing so off-label, and claim that it works just as well as Lucentis. Read more

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Final Defendant Faces Trial in Dallas City Hall Corruption Scandal

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The final case in the 2007 massive public corruption scandal centered on former Mayor Pro Tem Don Hill, began Monday. Builder Ron Slovacek is accused of being part of a scheme to funnel bribes to Hill and former Plan Commissioner D’Angelo Lee.

According to authorities, Slovacek, who is white, is accused of secretly partnering with Andrea Spencer, who is black, and using her minority business certificate to solicit construction contracts from wealthy Dallas developer Brian Potashnik, one of two developers  being shaken down by the Hill and Lee. The two officials pressured Potashnik and another developer, James R. Fisher into paying bribes for favorable votes to secure contracts for public housing projects. Fisher notified the FBI and became an informant.

Prosecutors charge that Slovacek was a knowing participant, who handled the work on framing contracts won by Spencer, which were billed at inflated prices. Some of those monies found their way back to Hill and Lee, by way of a phony consulting firm set up by Hill’s wife, Sheila Hill.

Thirteen people have so far been convicted or have pleaded guilty, including Hill who is serving 18 years in prison and Lee who is serving 14 years.

The Dallas Morning News

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L.A. District Attorney Ignored Reports of Corruption in Bell

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More than a year before the Bell, California corruption scandal hit the national news in July, three Bell police officers were trying to convince the Los Angeles County district attorney’s investigators to look into a number of illegal practices they observed first-hand while working for the city.

The three officers include James Corcoran, who retired in April, Sgt. Art Jimenez, and one other who has requested anonymity because he is currently involved in the investigation. Corcoran has since filed a whistleblower suit against the city.

After the officers met with the county district attorney’s office March 2009, investigators requested more information, even suggesting confirmation of potential abuses from city officials, some of whom were believed by the officers to be involved in the illegal activities. According to Corcoran, “my thinking was, OK, what am I, chopped liver? Here we are, three cops, asking for help, and they want our allegations substantiated by an elected official? As you know, an elected official is often part of the corruption.”

The district attorney’s office headed by Steve Cooley, a candidate for state attorney general on Nov. 2, didn’t ever get back to the three officers Read more

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Major Medicare Scammer Shut Down in Florida

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American Therapeutic Corp. in Miami, the nation’s largest chain of mental health clinics, is the latest operation to be shut down by the Justice Department for Medicare fraud. Federal investigators allege that the company may have bilked taxpayers of some $84 million in bogus claim payments.

According to The Miami Herald, the company’s two top executives, Lawrence Duran and Marianella Valera, operated the seven-clinic chain in south Florida without regard to patient safety or medical needs, lining up a steady stream of patients by paying bribes to a network of recruiters. Once there, officials claim, ATC billed for therapy sessions that never occurred, or were inappropriate for the patients’ conditions.

The operation was exposed to authorities by a whistle-blower lawsuit from a former employee. That employee was fired by the ATC after she complained that the company was billing Medicare for treatments for Alzheimer’s and dementia patients who could not possibly benefit from the therapy. The couple is also accused of altering patient records, medical diagnoses and therapy session notes to make the operation appear legitimate to Medicare examiners.

According to court records, company bank accounts were used to fund the executive’s lavish lifestyle, including expensive sport cars, motorcycles, jewelry, and condos, and trips to Switzerland, Dominic Republic and Cuba.  The company also made private-school tuition payments on behalf of Duran’s children.

The Miami Herald

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