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Two Men Sentenced for COVID-19 Relief Fraud Scheme

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Two Florida men were sentenced Friday for leading a nationwide scheme to defraud the Paycheck Protection Program (PPP) for millions of dollars in loans guaranteed by the Small Business Administration (SBA) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The U.S. District Court for the Northern District of Ohio sentenced Phillip J. Augustin, 53, of Coral Springs, to 78 months in prison, and James Stote, 56, of Hollywood, to 120 months in prison. Stote and Augustin each pleaded guilty to conspiracy to commit wire fraud on Dec. 14, 2021.

According to court documents, Augustin and Stote obtained a fraudulent PPP loan for Augustin’s company, Clear Vision Music Group LLC, using falsified documents. After submitting that application, Stote and Augustin immediately began trying to illicitly obtain larger PPP loans for themselves and their associates. Stote and Augustin recruited additional PPP loan applicants and prepared and submitted fraudulent loan applications for them in exchange for a share of the loan proceeds. Augustin used his network of business contacts as a manager for professional football players to recruit loan applicants. The applications they submitted for these loans relied on fake payroll numbers, falsified IRS forms, and phony bank statements. Stote submitted or facilitated at least 79 fraudulent loan applications worth at least $35 million. Among those loans, Augustin was responsible for at least 34 fraudulent loan applications worth at least $15 million.

In addition to his prison sentence, Stote was ordered to serve three years of supervised released and pay more than $10.1 million in restitution and more than $1.1 million in forfeiture. Augustin was ordered to serve three years of supervised released and pay more than $5.9 million in restitution and more than $272,000 in forfeiture.

In total, 25 people have been charged for their participation in this scheme in the Northern District of Ohio, Southern District of Florida, and Middle District of North Carolina.

Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division; Acting U.S. Attorney Michelle M. Baeppler for the Northern District of Ohio; Special Agent in Charge Bryant Jackson of the IRS-Criminal Investigation (IRS-CI) Cincinnati Field Office; Assistant Director Luis Quesada of the FBI’s Criminal Investigative Division; Interim Special Agent in Charge Philip E Frigm Jr. of the FBI’s Cleveland Field Office; and Special Agent in Charge Sharon Johnson of the SBA’s Office of Inspector General (SBA-OIG) Central Region made the announcement.

The IRS-CI, FBI, and SBA-OIG are investigating the cases.

Trial Attorney Philip Trout of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Elliot Morrison for the Northern District of Ohio prosecuted this case.

Since the inception of the CARES Act, the Fraud Section has prosecuted over 150 defendants in more than 95 criminal cases and has seized over $75 million in cash proceeds derived from fraudulently obtained PPP funds, as well as numerous real estate properties and luxury items purchased with such proceeds. More information can be found at https://www.justice.gov/criminal-fraud/ppp-fraud.

On May 17, 2021, the Attorney General established the COVID-19 Fraud Enforcement Task Force to marshal the resources of the Department of Justice in partnership with agencies across government to enhance efforts to combat and prevent pandemic-related fraud. The Task Force bolsters efforts to investigate and prosecute the most culpable domestic and international criminal actors and assists agencies tasked with administering relief programs to prevent fraud by augmenting and incorporating existing coordination mechanisms, identifying resources and techniques to uncover fraudulent actors and their schemes, and sharing and harnessing information and insights gained from prior enforcement efforts. For more information on the department’s response to the pandemic, please visit https://www.justice.gov/coronavirus.

Anyone with information about allegations of attempted fraud involving COVID-19 can report it by calling the Department of Justice’s National Center for Disaster Fraud (NCDF) Hotline via the NCDF Web Complaint Form at https://www.justice.gov/disaster-fraud/ncdf-disaster-complaint-form.

Press release distributed by the DOJ.

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Founders of cryptomining scheme accused of using investments to fund lavish lifestyle

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SEC Halts Fraudulent Cryptomining and Trading Scheme

Washington D.C. — The Securities and Exchange Commission this week announced fraud charges against MCC International Corp. (MCC), which does business as Mining Capital Coin Corp., its founders Luiz Carlos Capuci, Jr. (aka Junior Caputti or Capuci) and Emerson Souza Pires (Pires), and two other entities controlled by Capuci, CPTLCoin Corp. (CPTLCoin) and Bitchain Exchanges (Bitchain), in connection with the unregistered offerings and fraudulent sales of investment plans called mining packages to thousands of investors. According to the SEC’s complaint, Defendants MCC, Capuci, and Pires allegedly netted at least $8.1 million from the sale of the mining packages and $3.2 million in initiation fees. On April 21, 2022, the United States District Court for the Southern District of Florida issued a temporary restraining order against all of the defendants and an order freezing defendants’ assets, among other relief.

According to the SEC’s complaint, since at least January 2018, MCC, Capuci, and Pires sold mining packages to 65,535 investors worldwide and promised daily returns of 1 percent, paid weekly, for a period of up to 52 weeks. MCC also allegedly represented that the weekly profits were a result of “profit sharing” and that MCC earned profits from its operations involving cryptocurrency mining, trading stocks and foreign exchange, and trading cryptocurrency on digital asset trading platforms through the use of arbitrage trading and semi-automatic robotic trading. The complaint also alleges that, in its early days, MCC investors were promised returns in Bitcoin, but later, defendants required investors to withdraw their investments in tokens called Capital Coin (CPTL), which was MCC’s own token. In addition, the complaint alleges that MCC investors were required to redeem their CPTL on Bitchain, a fake crypto asset trading platform Capuci created and managed. However, when investors tried to liquidate their CPTL on Bitchain before their one-year memberships expired, they encountered purported errors that stymied their efforts and were required to either buy another mining package or forfeit their investments.

“As the complaint alleges, Capuci and Pires took every opportunity to extract more money from unsuspecting investors on false promises of outlandish returns and used investor funds raised from this fraudulent scheme to fund a lavish lifestyle, including purchasing Lamborghinis, yachts, and real estate,” said Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit. “The restraining order and asset freeze helps preserve investor assets and puts a stop to the defendants’ alleged ongoing fraudulent enterprise.”

The SEC’s complaint charges the defendants with violating the registration and anti-fraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 (Exchange Act), and Capuci and Pires with control person liability on behalf of MCC under the Exchange Act. The SEC’s complaint seeks injunctions against future securities law violations, disgorgement of the defendants’ ill-gotten gains, civil penalties, and officer and director bars against Capuci and Pires.

The SEC’s ongoing investigation is being conducted by Christine B. Jeon of the Cyber Unit, with the assistance of Devlin N. Su, Larry Brannon, and Steven Tremaglio of the Chicago Regional Office. Amy Flaherty Hartman and Ms. Littman are supervising the case. The SEC’s litigation will be led by Jonathan Polish.

Press release distributed by the SEC.

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SEC Charges Archegos and its Founder with Massive Market Manipulation Scheme

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Multiple Archegos Executives Charged with Misleading Counterparties

Washington D.C. — The Securities and Exchange Commission has charged Sung Kook (Bill) Hwang, the owner of family office Archegos Capital Management, LP (Archegos), with orchestrating a fraudulent scheme that resulted in billions of dollars in losses. The SEC also charged Archegos’s Chief Financial Officer, Patrick Halligan; head trader, William Tomita; and Chief Risk Officer, Scott Becker for their roles in the fraudulent scheme.

The SEC’s complaint alleges that, from at least March 2020 to March 2021, Hwang purchased on margin billions of dollars of total return swaps. These security-based swaps allow investors to take on huge positions in equity securities of companies by posting limited funds up front. As alleged, Hwang frequently entered into certain of these swaps without any economic purpose other than to artificially and dramatically drive up the prices of the various companies’ securities, which induced other investors to purchase those securities at inflated prices. As a result of Hwang’s trading, Archegos allegedly underwent a period of rapid growth, increasing in value from approximately $1.5 billion with $10 billion in exposure in March 2020 to a value of more than $36 billion with $160 billion in exposure at its peak in March 2021.

The complaint also alleges that, as part of the scheme, Archegos repeatedly and deliberately misled many of Archegos’s counterparties about Archegos’s exposure, concentration and liquidity, in order to get increased trading capacity so that Archegos could continue buying swaps in its most concentrated positions, thereby driving up the price of those stocks.  Ultimately in March 2021, price declines in Archegos’s most concentrated positions allegedly triggered significant margin calls that Archegos was unable to meet, and Archegos’s subsequent default and collapse resulted in billions of dollars in credit losses among Archegos’s counterparties.

“Today, we charged Archegos Capital Management and affiliated individuals with committing fraud and manipulating stock prices using total return swaps. The collapse of Archegos last spring demonstrated how activities by one firm can have far-reaching implications for investors and market participants. I thank the SEC staff for taking swift action to hold these actors responsible for their alleged misconduct, which hurt investors across our capital markets,” said SEC Chair Gary Gensler. “The failure of Archegos underscores the importance of our ongoing work to update the security-based swaps market to enhance the investor protections, integrity, and transparency of this market. Further, I encourage prime brokers and other market participants to remain vigilant to the risks presented by counterparty relationships.”

“We allege that Hwang and Archegos propped up a $36 billion house of cards by engaging in a constant cycle of manipulative trading, lying to banks to obtain additional capacity, and then using that capacity to engage in still more manipulative trading,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “But the house of cards could only be sustained if that cycle of deceptive trading, lies and buying power continued uninterrupted, and once Archegos’s buying power was exhausted and stock prices fell, the entire structure collapsed, allegedly leaving Archegos’s counterparties billions in trading losses.”

The SEC’s complaint, filed in federal district court in Manhattan, charges Hwang and the other defendants with violating antifraud and other provisions of the federal securities laws. The complaint seeks permanent injunctive relief, return of allegedly ill-gotten gains, and civil penalties. The SEC also seeks to bar individual defendants from serving as a public company officer and director.

In parallel actions, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges for similar conduct, and the Commodity Futures Trading Commission (CFTC) announced civil charges.

The SEC’s ongoing investigation is being conducted by David Zetlin-Jones and Brian Fitzpatrick of the Asset Management Unit and Joshua Brodsky of the Complex Financial Instruments Unit, with assistance from Stephen Johnson of the New York Regional Office. It is being supervised by Andrew Dean and Dabney O’Riordan of the Asset Management Unit and Osman Nawaz of the Complex Financial Instruments Unit. The litigation will be led by Mr. Zetlin-Jones and Jack Kaufman. Additional assistance to the investigation was provided by Dennis Hamilton and Adam Yonce of the SEC’s Division of Economic and Risk Analysis. The SEC acknowledges the assistance and cooperation of the U.S. Attorney’s Office for the Southern District of New York, the FBI, and the CFTC.

Press release distributed by the SEC.

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SEC Nearly Doubles Size of Enforcement’s Crypto Assets and Cyber Unit

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Washington D.C., May 3, 2022 — The Securities and Exchange Commission today announced the allocation of 20 additional positions to the unit responsible for protecting investors in crypto markets and from cyber-related threats. The newly renamed Crypto Assets and Cyber Unit (formerly known as the Cyber Unit) in the Division of Enforcement will grow to 50 dedicated positions.

“The U.S. has the greatest capital markets because investors have faith in them, and as more investors access the crypto markets, it is increasingly important to dedicate more resources to protecting them,” said SEC Chair Gary Gensler. “The Division of Enforcement’s Crypto Assets and Cyber Unit has successfully brought dozens of cases against those seeking to take advantage of investors in crypto markets. By nearly doubling the size of this key unit, the SEC will be better equipped to police wrongdoing in the crypto markets while continuing to identify disclosure and controls issues with respect to cybersecurity.”

Since its creation in 2017, the unit has brought more than 80 enforcement actions related to fraudulent and unregistered crypto asset offerings and platforms, resulting in monetary relief totaling more than $2 billion. The expanded Crypto Assets and Cyber Unit will leverage the agency’s expertise to ensure investors are protected in the crypto markets, with a focus on investigating securities law violations related to:

  • Crypto asset offerings;
  • Crypto asset exchanges;
  • Crypto asset lending and staking products;
  • Decentralized finance (“DeFi”) platforms;
  • Non-fungible tokens (“NFTs”); and
  • Stablecoins.

In addition, the unit has brought numerous actions against SEC registrants and public companies for failing to maintain adequate cybersecurity controls and for failing to appropriately disclose cyber-related risks and incidents. The Crypto Assets and Cyber Unit will continue to tackle the omnipresent cyber-related threats to the nation’s markets.

“Crypto markets have exploded in recent years, with retail investors bearing the brunt of abuses in this space. Meanwhile, cyber-related threats continue to pose existential risks to our financial markets and participants,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “The bolstered Crypto Assets and Cyber Unit will be at the forefront of protecting investors and ensuring fair and orderly markets in the face of these critical challenges.”

The infusion of 20 additional positions into the Crypto Assets and Cyber Unit will bolster the ranks of its supervisors, investigative staff attorneys, trial counsels, and fraud analysts in the agency’s headquarters in Washington, DC, as well as several regional offices.

Press release distributed by the SEC.

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President of Synergy Settlement Services accused of misusing beneficiaries’ funds on golf tournaments and beach parties

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Defendants allegedly used funds from deceased beneficiaries’ accounts on golf tournaments and beach parties

Washington D.C., May 2, 2022 — The Securities and Exchange Commission today announced fraud charges against Synergy Settlement Services, Inc., CEO Jason D. Lazarus, Esq., both based in Orlando, FL, and President Anthony F. Prieto, Jr. of Tampa, FL, for allegedly defrauding individuals with disabilities into believing that the individuals were placing their funds in a pooled trust managed by a non-profit association. According to the SEC’s charges, the defendants instead used a non-profit trustee as a shell company to profit from disabled personal injury victims.

The SEC alleges that Lazarus and Prieto formed the Foundation for Those with Special Needs, Inc. as a non-profit company to “assist personal injury victims with special needs.” The defendants, however, concealed from the beneficiaries, the Internal Revenue Service, and the Social Security Administration that they diverted at least $775,000 in trustee and joinder fees directly from the beneficiaries’ accounts to their for-profit business, Synergy. The SEC also alleges the defendants improperly used funds from deceased beneficiaries’ accounts to reimburse themselves, sponsor events and parties, and promote Synergy’s for-profit business. Synergy, Lazarus, and Prieto allegedly also did not tell beneficiaries they were investing beneficiaries’ money in a certain class of mutual fund that doubled the fees the beneficiaries were told they were paying.

“We allege that Synergy Settlement Services and its executives took advantage of vulnerable victims with special needs, making unethical and illegal profits off of them,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “The alleged greed Synergy and its executives displayed, treating themselves and clients to golf tournaments and beach parties using a sham non-profit company, betrayed the trust of their victims.”

The SEC’s complaint charges Synergy, the Foundation, Lazarus, Prieto, and Special Needs Law Firm with violating the antifraud provisions of the federal securities laws. The SEC’s complaint also charges Synergy, Lazarus, and Prieto with violating the registration provisions of the federal securities laws. The SEC seeks permanent injunctions and disgorgement of ill-gotten gains plus prejudgment interest against all defendants, and civil money penalties against all defendants except the Foundation.

The SEC additionally charged registered investment adviser True Link Financial Advisors, LLC, headquartered in San Francisco, CA, and its CEO, Kai H. Stinchcombe of Healdsburg, CA, in their role as investment and asset manager for the pooled trusts. True Link and Stinchcombe agreed to settle their case in a separate cease-and-desist proceeding without admitting or denying the findings that they caused certain violations of the antifraud provisions of the federal securities laws. True Link and Stinchcombe agreed to pay $200,000 and $20,000, respectively, in civil money penalties.

The SEC’s investigation is ongoing and being conducted by Jeffrey Cook and Jordan Cortez.  The case is being supervised by Eric Busto and Glenn Gordon, and the SEC’s litigation will be led by Robert Levenson and Alice Sum under the supervision of Teresa Verges.

Press release distributed by the SEC.

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Pharmacist Sentenced for $180 Million Health Care Fraud Scheme

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A former Mississippi pharmacist was sentenced this week to 10 years in the Southern District of Mississippi for a multimillion-dollar scheme to defraud TRICARE and private insurance companies by paying kickbacks to distributors for the referral of medically unnecessary prescriptions. The conduct resulted in more than $180 million in fraudulent billings, including more than $50 million paid by federal health care programs.

According to court documents, Mitchell “Chad” Barrett, 55, now of Gulf Breeze, Florida, and formerly of Mississippi, participated in a scheme to defraud TRICARE and other health care benefit programs by distributing medically unnecessary compounded medications. Barrett was licensed as a pharmacist in Mississippi and was a co-owner of various compounding pharmacies. As part of this scheme, Barrett adjusted prescription formulas to ensure the highest reimbursement without regard to medical necessity. He solicited recruiters to procure prescriptions for high-margin compounded medications and paid those recruiters commissions based on the percentage of reimbursements paid by pharmacy benefit managers and health care benefit programs, including commissions on claims reimbursed by TRICARE. He further routinely and systematically waived and/or reduced copayments to be paid by beneficiaries and members, and utilized a purported copayment assistance program to falsely make it appear as if his pharmacy and its affiliate compounding pharmacies had been collecting copayments.

Barrett pleaded guilty on Aug. 25, 2021, to conspiracy to engage in monetary transactions in criminally derived property. In addition to the term of imprisonment, Barrett was ordered to pay restitution and forfeit all assets traced to his ill-gotten gains.

Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division; U.S. Attorney Darren J. LaMarca for the Southern District of Mississippi; Assistant Director Luis Quesada of the FBI’s Criminal Investigative Division; and Special Agent in Charge Cyndy Bruce of the Department of Defense Office of Inspector General’s Defense Criminal Investigative Service (DoD OIG-DCIS) Southeast Field Office made the announcement.

The FBI Jackson Field Office and DoD OIG-DCIS are investigating the case.

Trial Attorneys Emily Cohen and Alejandra Arias of the Criminal Division’s Money Laundering and Asset Recovery Section and Assistant U.S. Attorney Kathlyn Van Buskirk of the Southern District of Mississippi are prosecuting the case with assistance from Sara Porter and Dustin Davis from the Criminal Division’s Fraud Section.

Press release distributed by the DOJ.

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Brazilian Mining Company Charged with Misleading Investors about Safety Prior to Deadly Dam Collapse

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Since 2016, Vale manipulated safety audits and obtained fraudulent stability certificates

Washington D.C. — The Securities and Exchange Commission has charged Vale S.A., a publicly traded Brazilian mining company and one of the world’s largest iron ore producers, with making false and misleading claims about the safety of its dams prior to the January 2019 collapse of its Brumadinho dam. The collapse killed 270 people, caused immeasurable environmental and social harm, and led to a loss of more than $4 billion in Vale’s market capitalization.

According to the SEC’s complaint, beginning in 2016, Vale manipulated multiple dam safety audits; obtained numerous fraudulent stability certificates; and regularly misled local governments, communities, and investors about the safety of the Brumadinho dam through its environmental, social, and governance (ESG) disclosures. The SEC’s complaint also alleges that, for years, Vale knew that the Brumadinho dam, which was built to contain potentially toxic byproducts from mining operations, did not meet internationally-recognized standards for dam safety. However, Vale’s public Sustainability Reports and other public filings fraudulently assured investors that the company adhered to the “strictest international practices” in evaluating dam safety and that 100 percent of its dams were certified to be in stable condition.

“Many investors rely on ESG disclosures like those contained in Vale’s annual Sustainability Reports and other public filings to make informed investment decisions,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “By allegedly manipulating those disclosures, Vale compounded the social and environmental harm caused by the Brumadinho dam’s tragic collapse and undermined investors’ ability to evaluate the risks posed by Vale’s securities.”

“While allegedly concealing the environmental and economic risks posed by its dam, Vale misled investors and raised more than $1 billion in our debt markets while its securities actively traded on the NYSE,” said Melissa Hodgman, Associate Director of the Commission’s Division of Enforcement. “Today’s filing shows that we will aggressively protect our markets from wrongdoers, no matter where they are in the world.”

The SEC’s complaint, filed in U.S. District Court for the Eastern District of New York, charges Vale with violating anti-fraud and reporting provisions of the federal securities laws and seeks injunctive relief, disgorgement plus prejudgment interest, and civil penalties.

The SEC’s investigation was conducted by Sharan Custer and Lauren Poper, with the assistance of Carlos Costa-Rodrigues. The investigation was supervised by Mark Cave and overseen by Ms. Hodgman. The litigation will be led by Dean M. Conway and David Nasse under the supervision of Melissa Armstrong. The SEC appreciates the assistance of the Brazilian Federal Prosecution Service, Ministério Público do Estado de Minas Gerais, and Brazil’s Comissão de Valores Mobilários.

The SEC announced in March 2021 the formation of a Climate and ESG Task Force in the Division of Enforcement with a mandate to identify material gaps or misstatements in issuers’ ESG disclosures, like the false and misleading claims made by Vale. More information about the Task Force can be found here.

Press release distributed by the SEC.

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SEC Announces Older Investor Roundtable Virtual Event on April 28

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Washington D.C. — The Securities and Exchange Commission will hold a virtual event on April 28 along with the North American Securities Administrators Association (NASAA) and the AARP to examine the latest challenges and issues affecting the senior investor community.

The Older Investor Roundtable will include panel discussions geared toward older investors, consumer advocates, and financial professionals nationwide as topics will include common frauds perpetrated against older investors, risks associated with digital assets and blockchain technology, and older client servicing and related issues.

SEC Chair Gary Gensler and SEC Commissioners Hester Peirce and Caroline Crenshaw will each deliver remarks.

The SEC’s Investor Advocate Rick Fleming, a host and organizer of the event, said, “We appreciate these roundtables because they allow us to hear directly from retail investors and draw from a diversity of thought, backgrounds, and experiences. Listening to the investors’ experiences allows the staff of the Commission to better anticipate the community’s needs, evaluate policy, and ultimately protect investors.”

Melanie Senter Lubin, NASAA President and Maryland Securities Commissioner, added, “This roundtable is an important and timely platform to bring together Main Street investors and the securities regulators who protect them from investment fraud. State securities regulators remain focused on protecting older investors and we look forward to working with the SEC and organizations such as the AARP to strengthen investor protection.”

“AARP is pleased to help the SEC and NASAA elevate the voices of the 50+ on the challenges they face regarding financial fraud and the importance of clear and concise disclosure,” said Nancy LeaMond, AARP’s Executive Vice President and Chief Advocacy & Engagement Officer and a member of the SEC’s Investor Advisory Committee. “The panelists represent the millions of voices of older adults across the country, particularly those who have been impacted by securities fraud.”

The SEC’s Office of the Investor Advocate organized the event as part of its role in providing a voice for investors. Among the office’s responsibilities are assisting retail investors, studying investor behavior, and facilitating the SEC’s Investor Advisory Committee.

The Older Investor Roundtable will take place from 10 a.m. to noon and will be webcast live on the SEC website.

Press release distributed by the SEC.

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Check out SEC’s updated list of firms using inaccurate information to solicit investors

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Washington D.C. — The Securities and Exchange Commission today announced that it updated its list of unregistered entities that use misleading information to solicit primarily non-U.S. investors, adding 58 soliciting entities, 11 impersonators of genuine firms, and one bogus regulator.

The SEC’s list of soliciting entities that have been the subject of investor complaints, known as the Public Alert: Unregistered Soliciting Entities (PAUSE) list, enables investors to better inform themselves and avoid being a victim of fraud. The latest additions are firms that SEC staff found were providing inaccurate information about their affiliation, location, or registration. Under U.S. securities laws, firms that solicit investors generally are required to register with the SEC and meet minimum financial standards and disclosure, reporting, and recordkeeping requirements.

“With publication of the PAUSE list, the Commission continues to take action to protect retail investors,” said Jose M. Rodriguez, Acting Chief of the SEC’s Office of Market Intelligence. “We are issuing an increasing number of alerts to provide valuable information and aid investors in making informed investment decisions.”

In addition to alerting investors to firms falsely claiming to be registered, the PAUSE list flags those impersonating registered securities firms and bogus “regulators” who falsely claim to be government agencies or affiliates. Inclusion on the PAUSE list does not mean the SEC has found violations of U.S. federal securities laws or made a judgment about the merits of any securities being offered.

The PAUSE list is periodically updated by the SEC’s Office of Market Intelligence, in coordination with the Office of Investor Education and Advocacy and the Office of International Affairs.

How to protect yourself:

Press release distributed by the SEC.

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Sameday Health settles with LA over fake COVID-19 test results

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Los Angeles – Calling alleged actions by a COVID-19 testing company a serious violation of public trust, City Attorney Mike Feuer has announced two settlements valued at a total of $26,454,593. One settlement for $22.5 million resolved allegations that the Venice-based national COVID-testing chain Sameday Technologies (doing business as Sameday Health) and its CEO Felix Huettenbach faked and forged COVID-19 test results, and engaged in false advertising and insurance fraud. City Attorney Feuer also reached a $3.9 million settlement with Dr. Jeff Toll, M.D., a Los Angeles-based doctor, to resolve allegations that he was a partner in Sameday Health’s alleged insurance fraud.

Sameday Health operates 55 testing locations nationwide, with 16 locations in L.A. County and five in the City, and has made tens of millions in revenue since the beginning of the pandemic. The settlements require the defendants to pay restitution and civil penalties, and comply with permanent injunctions prohibiting them from participating in the alleged activities that led to the City Attorney’s investigation. L.A. County District Attorney George Gascón joined Feuer in this civil enforcement action.

“It’s beyond outrageous that anyone would falsify COVID tests, as we allege happened here. If you get a negative test, you assume it’s safe to go to work, visit family and friends, or take a vacation. But the victims of this alleged scheme might unknowingly have spread COVID to others or failed to receive timely and appropriate care themselves,” said Feuer. “I just got over COVID myself and know how essential it is to have accurate test results. This landmark resolution will stop this alleged scheme, give restitution to consumers and insurers, and impose severe penalties.”

“We’ve intervened to protect consumers in numerous major COVID-related matters, but this may be the most significant consumer protection case to emerge from the pandemic,” Feuer added.

“My office is dedicated to protecting the people of Los Angeles County from dangerous and costly scams like these and seeking appropriate action against those who take advantage of consumers through fraudulent business practices,” District Attorney Gascón said. “It is not only illegal but also unconscionable to defraud people seeking medical assistance in the midst of a public health crisis. We will continue to work to bring justice to victims of all crimes, including fraud.”

According to the complaint, Sameday Health and Huettenbach allegedly falsely advertised that they could deliver COVID-19 test results to consumers within 24-hours, knowing they could not truthfully make that guarantee. When they could not fulfill their false promises, Sameday Health and Huettenbach allegedly faked, falsified and forged COVID-19 test results for at least 500 customers by manipulating old PDF lab reports and results from previous tests. The complaint alleges that, in some cases, Sameday Health sent these fake results to customers before their tests had been run or even delivered to the lab for testing. The complaint also alleges that Sameday Health sometimes sent fake results to customers whose tests were never processed by a lab—meaning that even though the customer received a “negative” result from Sameday Health, Sameday Health had no way of knowing whether the customer actually tested positive for COVID-19.

The two complaints further allege that Sameday Health and Huettenbach partnered with Toll to engage in insurance fraud by charging insurance companies that were already paying for COVID-19 tests an additional fee for medically unnecessary medical consultations. According to the complaint against Sameday Health, Sameday Health and Huettenbach required customers paying with insurance to consent to and participate in medically unnecessary consultations with doctors in order obtain a COVID-19 test. On the other hand, consumers paying with cash, the complaints allege, were not required or even able to obtain these consultations. Sameday Health allegedly targeted its insured consumers and steered them to Toll for superficial, two to three-minute-long telemedicine visits for which they charged health insurers approximately $450. In exchange for steering these customers to him, Toll allegedly gave Sameday Health a large portion of his profits from the consultations as a kickback. In all, the Sameday Health complaint alleges that Sameday Health made millions of dollars from California-based insurance claims alone.

In the settlement, Sameday Health and Huettenbach both agree to be subject to a permanent injunction that prohibits them from engaging in the unlawful business practices alleged in the complaint. The injunction also prohibits Huettenbach personally from accessing any test result or medical record belonging to any of Sameday Health’s customers. In addition to the permanent injunction, Sameday Health and Huettenbach have agreed to pay more than $9.5 million in restitution and nearly $13 million in civil penalties. In addition, the settlement requires Sameday Health to hire, and spend up to $100,000 to retain, an independent monitor to ensure that it does not send customers fake COVID-19 test results. Toll, on the other hand, agrees to be enjoined from engaging in any of the conduct alleged against him in the complaint and to pay $1.15 million in civil penalties and more than $2.8 million in restitution.

In all, these settlements require defendants to pay nearly $26.5 million, including more than $12.4 million in restitution and almost $14 million in civil penalties.

All of the defendants cooperated with the investigation into this matter.

Feuer advises those seeking COVID-19 tests to book one through a trusted healthcare provider or with Health Services of L.A. County. He reminds Angelenos to confirm in advance whether the testing service requires customers to pay for services with insurance or cash—especially those that advertise “free” services.

Feuer also advises those obtaining COVID-19 tests to be vigilant concerning tests with possible fake results. Customers should be on the lookout for COVID-19 testing services claiming that they will deliver results to customers one way (such as through a link to an online portal) but actually deliver the results in a different way (such as by attaching a PDF or simply writing the result in an email) or sending results that include any suspicious or incorrect information (such as incorrect dates or locations). These practices could indicate that the results are not trustworthy. Please report any suspicious COVID-19 testing services on the City Attorney’s online Consumer Complaint portal.

Los Angeles Supervising Deputy City Attorney Christina Tusan and Deputy City Attorneys William Pletcher, Alex Bergjans, Carr Tekosky, Louisa Kirakosian and Sarah Spielberger, all of the City Attorney’s Consumer Protection Unit, and Head Deputy District Attorney Hoon Chun and Deputy District Attorney Seza Mikikian, of the Los Angeles County District Attorney’s Consumer Protection Division, are litigating this matter.

Read the Complaints and settlement documents:

Since the beginning of the COVID-19 pandemic in Los Angeles in March 2020, City Attorney Feuer has worked to protect Angelenos and has been a national leader in the prosecution of COVID-19 related scams and price gouging, including:

  • Obtaining multiple convictions for criminal price gouging of goods by online retailers and brick and mortar stores, resulting in orders of restitution to victims, criminal fines and the donation of personal protective equipment;

  • Issuing cease and desist letters to local stores allegedly engaged in price gouging; and

  • Filing numerous civil law enforcement actions against companies and individuals who allegedly marketed and sold unauthorized COVID-19 tests and treatments, obtaining orders stopping the unlawful conduct and obtaining hundreds of thousands of dollars in restitution for victims and substantial civil penalties.

Press release distributed by the LA City Attorney Mike Feuer..

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