State of OhioCOVID-19 continues to rage on after months of impacting our lives, businesses, and the economy. Ohio, at one point a beacon of the country’s COVID-19 response, has recently set state records for new daily cases, hospitalizations, and, sadly, deaths. In response to the increased number of cases in Ohio, last week, Governor DeWine announced a new set of COVID regulations and created a new investigative task force designed to curtail the spread of COVID-19. These new regulations will impact businesses immediately.

The RestartOhio Regulations

In April, Governor DeWine, through the Ohio Department of Health (“ODH”), promulgated the “RestartOhio Regulations,” which aimed to limit the spread of COVID-19 as Ohio reopened. We wrote about the RestartOhio Regulations and their predicted impact on Ohio businesses here. As we believed, restaurants and bars suffered from citations, fines, and government intervention from the Ohio Investigative Unit (“OIU”), a unit tasked with enforcing the RestartOhio Regulations. To date, the lion’s share of enforcement appears to have been directed at restaurants and bars; however, the Governor’s recent order appears designed to expand enforcement to other retail establishments while further tightening restrictions on the restaurant industry.

Ohio’s Revised Orders

On November 11, 2020, Governor DeWine reupped regulatory oversight of businesses, retail establishments, and bars and restaurants and announced two revised orders. The first revised order governs the use of masks. The existing July 23, 2020 mask order required individuals to wear masks indoor non-residential buildings, outdoors when unable to maintain a six-foot distance from others, or while waiting for or riding public transportation. The mask order did not apply to those younger than ten years, those for which it would not be medically safe to wear a mask, individuals who are communicating with the hearing impaired, those who are alone in an enclosed non-residential space, those actively engaged in exercise, and various other exceptions.

The revised mask order leaves in place the requirements from the first order and further requires each retail establishment to post a sign that requires face-covering upon entry. Each store is additionally tasked with ensuring that each customer and employee complies with the mask order. By the terms of Governor DeWine’s announcement, a well-meaning business who fails to ensure just one customer is wearing a mask would be in violation of the order.

The second revised order relates to Ohio’s social gathering order. The existing April social gathering order, with certain exceptions, prohibited congregating in groups of ten or more individuals. The revised social gathering order, in contrast, places greater restrictions on “open congregational areas,” including outdoor dining areas. Under the newly-issued order, patrons must remain seated and masked unless they are actively consuming food or drinks. Patrons may not dance at outdoor dancing areas or meander about while dining. This order will impact bars and restaurants most directly, and Governor DeWine left open the question of whether bars and restaurants will be permitted to remain open at all. Governor DeWine indicated an announcement with respect to whether bars and restaurants will be shut down will come by November 19, 2020.

Implications for Businesses Being Investigated

Governor DeWine created an investigative team to enforce these revised orders. The Retail Compliance Unit, or “RCU,” is comprised of agents led by the Ohio Bureau of Workers’ Compensation. The RCU is empowered to audit businesses for compliance with the revised orders. A business’s first violation of a revised order as cited by the RCU will result in a written warning. A second violation will result in the closure of the business for up to 24 hours. While little is known about the RCU because it was just created last week, businesses should be aware that undercover officers are a potential source of government investigation. Just like the OIU, an RCU agent could walk into a business, examine it for non-compliance, and leave without a trace.

It appears certain that enforcement of the RestartOhio Regulations will increase after Governor’s DeWine’s announcement, and the most important takeaway for businesses is that the new orders put the onus on the business to know and enforce these new rules so that they can ensure compliance, regardless of a patron’s proclivity for mask use. Therefore, businesses should instruct their employees on these new rules, train their employees to remain vigilant to ensure its patrons wear face coverings, and instruct them how to appropriately address uncooperative customers. If they have not already, Ohio businesses should adopt the standards set out in the RestartOhio Regulations and the revised orders. Failure to adopt appropriate safety precautions could result in the business being fined or closed.

 

Fraud“Never let a good crisis go to waste” was an observation supposedly made by Winston Churchill at the Yalta Conference towards the end of the Second World War while he was pressing for the formation of the United Nations.  In 2020, Churchill’s admonition has found a less lofty home with COVID fraudsters who have abused the Paycheck Protection Program (“PPP”) by submitting false loan applications.  As explained in more detail in this earlier post, PPP authorized banks to make up to $649 billion in forgivable loans to small businesses for job retention and certain other expenses.  Alongside the announcement of PPP and its disbursements over the past summer, DOJ has been vocal about investigating PPP fraud and identifying problems in applications for PPP funds sought by individual and businesses, and its enforcement activity has recently increased.  We cautioned in a prior post here that the PPP application and repayment forms require that the borrower to make “good faith” certifications about their business and its need and use of the PPP funds.  Now, nearly eight months after the first announcement of PPP, we have identified several trends in DOJ’s efforts to investigate and prosecute PPP fraud.

First, the number of DOJ prosecutions continues to steadily increase.  In early September, DOJ reported that it had charged a total of 57 different defendants with PPP fraud.  Two months later, in early November, that number has increased to 73.  This won’t set any records, but it is evident that DOJ is continuing to monitor, investigate, and pursue criminal charges for PPP loan fraud.  Interestingly, however, both in September and this month, DOJ identified roughly 500 individuals who committed PPP fraud, suggesting that, despite its aggressive rhetoric, DOJ has not yet commenced a widescale investigation of the 5.5 million recipients of PPP loans.

Second, the vast majority of PPP fraud cases brought so far generally involve “textbook fraud,” meaning that the DOJ is bringing charges focused on clear misrepresentations like fabrication of employee numbers or the borrower’s use of PPP funds for personal purposes  This is not surprisingly, given both the size of PPP and that it is easier pursue the low-hanging fruit  involving readily-apparent fraud.  For example, in September, DOJ charged a Hawaii-based business man with PPP fraud based on three fraudulent PPP applications for over $12.8 million in funds.  This individual, per DOJ: (a) misrepresented the number of employees at his business and their compensation; (b) deposited $2 million of the PPP funds into his personal bank account; and (c) overstated how his business had been negatively affected by the COVID-19 pandemic.  In another case in October, DOJ charged two individuals in separate, but related, frauds in which each individual provided falsified documents in support of their respective PPP applications that misrepresented the size of the businesses and the number of their employees and, consequently, obtained over $24 million in funds.  Notably, one of the individuals allegedly used a portion of the loan funds to by luxury goods and a Ferrari.

Third, as the above two examples make clear, DOJ appears to be appropriately focused on larger loans, aligning with earlier Treasury statements that loans under $2 million would not be heavily scrutinized.  Where the fraud is egregious, however, DOJ may still bring charges even if the loan is less than $2 million. A recent set of charges were brought against five individuals who obtained $1.1 million in PPP loans when, in actuality, they had no actual business operations or employees.

None of this may seem particularly surprising:  the PPP was a high profile and historically large government program, triggering both increased likelihood of potential fraud and resulting criminal prosecutions.  But these last few months are probably not fully indicative of future DOJ actions.  First, there is no indication that the pace of prosecutions will slow down in the near term; if anything, under the new presidential administration, we may see an increase in fraud prosecutions.  Second, while there are likely more cases of clear-cut fraud, we would expect the DOJ to take a more expansive and creative approach to PPP prosecutions as the low-hanging fruit is resolved.  Third, the federal fraud statutes have a long statute of limitations – for example, ordinary wire fraud is five years, and wire fraud that affects a financial institution, which would likely cover most PPP fraud, is 10 years – giving the DOJ ample time to conduct investigations and prosecute them in an orderly fashion.

nursing homeSeveral months into the COVID-19 pandemic that has gripped the United States, it is well established that hotbeds for spread of the disease are nursing homes and other assisted living facilities. Tight quarters holding vulnerable populations is precisely the kind of environment in which the novel coronavirus thrives. That fact is made all the worse when good hygiene and sanitation standards are not met.

Indeed, the importance of nursing homes meeting high sanitation standards was recognized by the federal government even before the current pandemic took hold of such facilities. On March 3, 2020, the Department of Justice (DOJ) and the Department of Health and Human Services announced the creation of the National Nursing Home Initiative (NNHI) [link to blog post: https://www.doescrimepay.com/2020/06/criminal-enforcement-risks-for-nursing-homes-during-the-covid-19-pandemic/]. The purpose of the NNHI was to pursue criminal and civil enforcement actions against nursing homes that provide “grossly substandard care.”

Eight months later, however, those promises to hold nursing homes accountable have proven hollow, according to new reporting from The Washington Post [link to article: https://www.washingtonpost.com/business/2020/10/29/nursing-home-deaths-fines/]. As part of the overarching initiative to improve the quality of nursing homes throughout the country, the Centers for Medicare and Medicaid Services (CMS) was to conduct a series of newly strengthened inspections to ensure 15,400 Medicare-certified nursing homes were abiding regulations meant to prevent the spread of communicable diseases. If a home failed its inspection, CMS could levy penalties, including fines up to $22,000 per day that a violation persisted.

The Washington Post found, though, that government inspectors deployed by CMS during the first six months of the pandemic cleared nearly 8 in 10 nursing homes of any violations of standards meant to contain the spread of disease. All told, nursing homes that passed inspection earlier this year had about 290,000 coronavirus cases and 43,000 deaths among residents and staff, The Washington Post found. And as for penalties imposed on those homes that were found to have violated safety standards, from January through August of this year, CMS imposed about $46 million in total fines, roughly half of what was imposed during the same time period last year.

Enforcement under the NNHI does not seem to have much more traction. What are believed to be the first criminal charges brought against nursing home management associated with the COVID-19 pandemic only came in late September and came from a state Attorney General’s office—not the Department of Justice—at that. Massachusetts AG Maura Healy announced [link to article: https://www.mcknights.com/news/nations-first-covid-19-criminal-charges-against-nursing-home-operators-filed-in-massachusetts/] that two leaders of a veterans’ home had been indicted on charges of causing or permitting serious bodily injury or neglect of an elder connected to the merging of two dementia care units that resulted in combining COVID-19-positive residents with asymptomatic ones. Seventy-six patients ultimately died from the disease.

Of course, the end of the pandemic is nowhere in sight and the likelihood that COVID-19 infections and deaths will continue to plague nursing homes is high. Despite little indication thus far that enforcement is sure to come, nursing homes would do well to heed the warnings of CMS and the DOJ that they are taking safety and sanitation standards seriously. Abiding such standards would be not only in the best interests of the nursing homes, but is vitally important in combatting the COVID-19 pandemic and saving American lives.

courthouseThis past September, District Court Judge Alison Nathan, from the Southern District of New York, issued a withering decision reprimanding prosecutors in the U.S. Attorney’s Office for a “cascade of failures to timely disclose” Brady materials before or even during trial, including documents that the Government disclosed to the defense only after the trial concluded and which the Government admitted were exculpatory. In fact, records that ultimately made their way before the Court showed that prosecutors knowingly misrepresented information about the handling and review of search warrant fruits and took steps to “bury” exculpatory documents in belated, post-trial productions.

Fortunately for the defendant in that case, United States v. Sadr, the Government eventually took a knee and acknowledged the prosecutors’ failings. The Court vacated the defendant’s conviction and dismissed the charges against him with prejudice. Unfortunately, these failures aren’t unique to the Southern District of New York.

The Fifth and Fourteenth Amendments to the U.S. Constitution guarantee due process to criminal defendants. One component of that due process is a requirement that prosecutors disclose to the accused all “evidence favorable to the accused” that is “material either to guilt or to punishment.” The prosecution’s failure to provide this evidence to the accused – so-called “Brady” material after the Supreme Court’s decision in Brady v. Maryland – is a constitutional violation regardless whether the prosecution acted in good faith or bad faith.

Brady disclosures are a critical means by which the defense can put the prosecution to its burden, even if it doesn’t ultimately get the defendant into the endzone (and out of prison). Indeed, exculpatory evidence can mean the difference between a conviction or an acquittal and, very often, can increase a defendant’s chance to obtain a less severe sentence. Given this importance, courts have reinforced prosecutors’ Brady obligations in the nearly six decades since the Supreme Court recognized them. But that reinforcement doesn’t exactly translate into prosecutorial compliance, as Judge Nathan’s decision illustrates.

Several years ago, federal prosecutors withheld crucial Brady material from the defense in a high-profile corruption prosecution of the late Alaskan Senator Ted Stevens. A multi-year investigation, after Stevens’ conviction had been vacated at the Government’s own request, uncovered several instances where the prosecution hid evidence that tended to show Senator Stevens was acting on the up-and-up, failed to disclose favorable witness statements, and improperly inflated the value of the alleged perks Senator Stevens purportedly received.

The impact of the Stevens case has been long-lasting, if slow to bring about real change. Just a few days ago, however, Congress enacted the Due Process Protections Act, a rare bi-partisan proposal led by Senators Dan Sullivan (R-Alaska) and Dick Durbin (D-Ill.), that provides for the amendment of Federal Rule of Criminal Procedure 5 to require judges in criminal cases, at the beginning of every case, to issue an “order to the prosecution and defense counsel that confirms the disclosure obligation of the prosecutor under Brady v. Maryland, 373 U.S. 83 (1963) and its progeny.”[1] The Act also requires judges to remind the prosecution of the “possible consequences for violating such orders” and instructs each judicial district to develop a form order.

The reference in the Act to the “possible consequences” for a violation of Brady obligations is worth considering. The Eastern District of Virginia has already issued its model Brady order and refers to the “serious consequences” that can attend a Brady violation: vacating a defendant’s conviction or disciplinary action against the prosecution. The reality, of course, is that vacating a conviction is likely the consequence. In Senator Stevens’ case, the prosecutors found to have committed the violations were not punished in any meaningful way – two of the six were briefly suspended, but that was later overturned.

As for vacating a conviction, this only has a tangential effect on the prosecutors who committed the violation. They will continue to go about their jobs (like the Stevens’ prosecutors), managing heavy caseloads that might themselves be responsible for the more typical – if equally unacceptable – disclosure failures. It’s hard to see how reversal of a conviction offers any more than a vague incentive for prosecutors to take their Brady obligation seriously in the next case. And the lack of real consequence personally is even less incentive.

The Act is ultimately a small salvo in a growing conversation about the true extent of prosecutors’ conduct and misconduct in pursuing criminals. Last year, the New York legislature enacted a law creating a commission that would review state and local prosecutors’ offices to unearth and address prosecutorial misconduct. Unfortunately, the District Attorneys Association of the State of New York challenged the law and the Governor and legislature agreed to take the plan back to the huddle. Related questions of prosecutorial misconduct have been percolating, and we can expect defense counsel to hammer the Brady orders that flow from the Act, but it remains to be seen whether defendants’ due process rights and the “serious consequences” for violating them will be taken seriously.

[1] Public Law No. 116-182 (Oct. 21, 2020).

If you were on the Internet in May 1998, you were probably on an IBM-compatible PC, running Microsoft Corporation’s Windows 95 operating system and surfing the web using Internet Explorer, which was also a Microsoft product. And, in May 1998, Public Enemy Number One was the bootlegger, rumrunner, racketeer and boss of the Chicago Outfit bespectacled co-founder of Microsoft, Bill Gates. In May 1998, the United States Department of Justice, along with the Attorneys General of 20 states, filed an antitrust action against Microsoft, seeking a breakup of the company. The government’s main gripe? Microsoft included a copy of its Internet Explorer software with every copy of its popular Windows operating system and incentivized manufacturers to include Internet Explorer on their computers. The government’s case against Microsoft went to trial and the government prevailed. On June 7, 2000, in order to remedy the supposed antitrust violation, the trial judge ordered Microsoft to be broken up.

From those halcyon days when 56,000 baud was a lightning fast connection.

Microsoft, of course, was never broken up. The order was overturned by the Court of Appeals and, in November 2001, the Justice Department entered into a settlement with Microsoft whereby Microsoft largely continued the same business practices that it had always done. Victory, it seems, had been assured. But for who?

Although Internet Explorer was on the top of the heap in May 1998, that wasn’t always the case and wouldn’t be true in the near future, either. Two years earlier, in 1996, Netscape’s Navigator software commanded over 80% of the market for Internet browsers. The World Wide Web was written specifically for Netscape and many websites could not be properly loaded on other browsers, and Netscape charged customers nearly $50 for its web browser ($83 in 2020 dollars).[1] Microsoft’s vision to attack Netscape’s dominance was to bundle its Internet Explorer software—for free—with its immensely popular Windows operating system. This strategy worked so well that it not only prompted an antitrust lawsuit from the Justice Department, it permanently altered the market for web browsers, which are still given away for free.

In May 1998, Google did not exist. The company would not be founded until September of 1998 and its Chrome browser would not be released for another ten years. At the time Chrome was released, Internet Explorer commanded a market share of approximately 60%.[2] Alas, the invisible hand is unforgiving and Microsoft’s dominance did not last. By January 2013, Google’s Chrome had exceeded Internet Explorer in market share. Today, Microsoft’s Edge and IE browsers combine for approximately 5% of the total market.

It is hard to overstate the importance that Microsoft had on personal computers and, by extension, our lives today. Before Windows was released, the market for home-based IBM-compatible personal computers was largely hobbyists or technical users, who interacted with the computer through MS-DOS, which was short for Microsoft Disk Operating System and looked like this:

Don’t forget to format your floppy disk!

Microsoft’s success with the Windows operating system was largely based on building an intuitive system that appealed to users beyond computer enthusiasts. Everyone—even people with little familiarity with computers—could use Microsoft Windows. In the process, Microsoft help create an America in which many ordinary people have a personal computer in their home.

By that same token, it’s also hard to overstate Google’s impact on the Internet and our lives. Google created a search engine that, using natural language, returned relevant results in the blink of an eye, for free. No company had ever before had been able to do this, and it revolutionized the Internet. Google would go on to do the same thing with countless other products, including email, word processing, maps, and, of course, Chrome.

Did we ever figure out when the new millennium began? I vote for 2001.

In 2020, the government’s ill-advised antitrust suit against Google echoes the Microsoft case of twenty years ago. Now, Google’s Chrome is the dominant web browser and uses Google’s search engine as a default. Google has also, supposedly, entered into agreements with other companies to make Google the default search engine on other browsers and devices. Even if that is true, the government’s case, however, suffers from the same fundamental flaw: the bureaucrats tasked with enforcing the antitrust laws are driven by politics, not sound judgment, and they lack the faith that the market will, over time, rewards the best companies creating the best products. Companies and products come and go. The history of the Internet is littered with the corpses of dominant companies, including Netscape. In 2008, the same year that Google introduced its Chrome browser, Netscape discontinued support for Navigator.

It was the market, not the government, that dethroned Internet Explorer. Though it may be hard to imagine now, Google will eventually succumb to the same fate. The government’s interference in one of the few remaining free markets will do nothing but hurt consumers through higher prices and worse products.

[1] https://www.fastcompany.com/27743/nothing-netscape.

[2] As measured by W3 Counter, which counts page views from over 80,000 websites.

State of OhioIt seems that every corner of Ohio has seen a high-profile federal public corruption prosecution in recent years. So much so that some may not know that Ohio has its own statutory scheme to hold wayward public officials accountable: the Ohio Ethics Law.

 What Is It?

The Ohio Ethics Law, which was enacted in 1974, is comprised mostly of the provisions of Ohio Revised Code Chapter 102 and Sections 2921.41 and 2921.433. These statutes lay out the ethical rules and standards to which Ohio’s public servants must adhere.[1]

Three different agencies have responsibility for investigating and enforcing the Ohio Ethics Laws.[2] The Board of Commissioners on Grievances and Discipline of the Supreme Court of Ohio has jurisdiction over ethical violations by public servants of the judicial branch.[3] The Joint Legislative Ethics Committee has jurisdiction over matters regarding public officials and employees of the general assembly and legislative agencies.[4] Last, the Ohio Ethics Commission has jurisdiction over all public officials and employees of public agencies that are a part of Ohio Executive Branch, including those at the state and local levels of government.[5]

Who Does It Cover?

Most public servants in Ohio, from the temporary unskilled laborer in your city’s public works department all the way up to the executives and directors of state public agencies, are “public officials and employees” subject to the Ohio Ethics Law.[6] The law defines a “public official or employee” as generally any person “who is elected or appointed to an office or is an employee of any public agency.”[7] A public agency includes most state and local governmental offices, departments, and divisions, as well public schools and universities.[8] So, if you receive a paycheck from the State of Ohio, you are probably subject to the Ohio Ethics Law.

Everyday teachers and educators, whose positions generally do not include administrative or supervisory authority, are generally not considered public employees for the purposes of the Ohio Ethics Law.[9] High ranking members of the two major political parties, such as central committee members or national convention delegates, are also not public officials or employees for the purposes of the Ohio Ethics Law.[10]

What Conduct Does It Govern?

The Ohio Ethics Law governs a wide range of conduct of public officials. Its provisions fall into four major categories: 1) Prohibitions Against Conflicts of Interest; 2) Financial Disclosure Requirements; 3) Post-Employment Restrictions; and 4) Restrictions Against Interests in Public Contracts.

No Conflicts of Interests Allowed

A conflict of interest generally arises when any of the following occurs: 1) a public official or employee uses the authority of his/her office or position to secure a benefit or avoid a detriment to himself/herself or a person close to him/her; 2) a public official or employee solicits or accepts a thing of value that could result in a substantial and improper influence in the performance of his/her duties; and 3) a public official or employee solicits or accepts supplemental compensation for performing an official duty.

Recommending, approving, or even merely discussing actions that may affect a public official or employee’s interest may be considered a use of his/her authority and, therefore, a violation of the Ohio Ethics Law.[11] It does not matter whether the public official is the final decision maker or even if the recommended course of action is ultimately adopted. For example, hiring a close family member would obviously be nepotism and a violation of the Ohio Ethics Law,[12] but even something as small as directly forwarding on the application materials of a close family member could arguably be considered the use of one’s authority of office to secure a benefit.

Both the value of an item and its source should be taken in consideration when public officials and employees are deciding whether to accept something. Depending on the circumstances, items of value can include things such as: free travel and lodging, meal expenses, gifts, and honoraria.[13] Persons regulated by or seeking to do business with the agency of the public official or employee are often considered improper sources.[14]

Compensation for the performance of an official duty by public official or employee can only come from the public official’s employer.[15] This prohibition is designed, in part, to guard against any appearance of bribery and influence peddling by public servants.

Financial Disclosure Requirements

All persons running for or currently holding elected office in Ohio, as well high-ranking governmental administrators and employees are required to file financial disclosure statements. Subject to certain exceptions, these financial disclosure statements must identify, the names of the filer’s immediate family members, the amount and every source of the filer’s income, the names of companies in which the filer has investments, any investment properties in Ohio, certain creditors and debtors of the filer, and the source’s certain gifts and payments for travel and meal expenses.

Post-Employment Restrictions

After employment with a public agency ends, the former public official or employee cannot represent any person or entity, whether formally or informally, in connection to matters in which the public servant personally participated.[16] This restriction lasts for one year of post-employment for most former public servants,[17] but could last up to two years for former commissioners of the Public Utilities Commission of Ohio, employees that had authority over solid and hazardous waste matters, and employees of the Ohio Casino Control Commission.[18] Additionally, public officials and public employees who are required to file financial disclosures must also file a statement disclosing any subsequent place of employment.[19]

There are a few major exceptions to the post-employment restrictions. First, a public servant that leaves the government may represent his/her former public agency.[20] Second, a former public official or employee may perform ministerial functions, such as filing forms and applications or seeking licenses.[21] Finally, an employee that leaves a public agency for another public agency is not restricted from representing his/her new employer.[22]

Restrictions Against Interests in Public Contracts.

A public official or employee cannot do any of the following: 1) authorize a public contract in which he/she, a member of his/her family, or a business associate has an interest;[23] 2) authorize an investment of public funds in which he/she, a family member of business associate has an interest or receives a fee;[24] 3) profit or benefit from a public contract to which he/she is connected;[25] 4) authorize and profit from a public contract that was not awarded to the lowest bidder after competitive bidding.[26]

A “public contract” is any purchase of any property or services for use by a public agency or contact for the construction or maintenance of a public property[27] A public official “authorizes” a public contract if he/she takes any action whatsoever to vote, deliberate, or otherwise participate in the decision-making process with respect to the implementation of the public contract.[28]

What Are the Penalties?

Although most violations of Chapter 102 only constitute misdemeanors punishable by fines and jail time up six months,[29] much of the conduct covered in the chapter overlaps with the conduct prohibited by the Ohio and federal criminal codes. For instance, the restrictions against receiving extraneous compensation for the performance of an official duty and having an interest in a public contract are plucked directly from Ohio Revised Code Chapter 29. Such conduct also comes dangerously close to the line of felony bribery and unlawful gratuities, which carry prison terms of up to five years under Ohio law[30] and up to two or fifteen years under federal law.[31]

The Ohio Ethics Law and related statutory provisions can be a dense thicket of laws and regulations that affects so many public servants. Unfortunately for those who are not prepared, or who have not taken the time to understand these laws, the consequences for non-compliance can be significant. Public employees, former public employees, and public employees who may be considering leaving the public sector, should ensure that they fully understand the Ohio Ethics Law and its legal obligations.

[1] See Ohio Ethics Law Overview, The Ohio Ethics Commission (last updated May 2019), available at https://www.ethics.ohio.gov/education/factsheets/EthicsLawOverview.pdf.

[2] R.C. 102.01(F).

[3] R.C. 102.01(F)(2).

[4] R.C. 102.01(F)(1).

[5] R.C. 102.01(3).

[6] R.C. 102.01(B).

[7] Id.

[8] R.C. 102.01(C)(1).

[9] R.C. 102.01(B).

[10] Id. Party officials, however, do fall within the scope of Ohio’s bribery statute. R.C. 2921.02.

[11] Ohio Ethics Advisory Opinion No. 2009-04, 1998-04, & 1990-10.

[12] R.C. 2921.42(A)(1).

[13] Ohio Ethics Advisory Opinion Nos. 2001-04 & 2011-04; R.C. 102.03(H).

[14] Id.

[15] R.C. 2921.43(A).

[16] R.C. 102.03(A)(1).

[17] Id.

[18] R.C. 102.03(A)(2)-(3) & (10).

[19] R.C. 102.021

[20] R.C. 102.03(A)(6).

[21] R.C. 102.03(A)(7).

[22] R.C. 102.03(A)(8)-(9).

[23] R.C. 2921.42(A)(1).

[24] R.C. 2921.42(A)(2).

[25] R.C. 2921.42(A)(3).

[26] R.C. 2921.42(A)(4).

[27] R.C. 2921.42(I)(1)(A).

[28] Ohio Ethics Advisory Opinion No. 2001-02.

[29] R.C. 102.99.

[30] R.C. 2921.02.

[31] 18 U.S.C. § 201.

algorithimIn The Wealth of Nations, Adam Smith famously wrote, “[p]eople of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”[1] Although now nearly 250 years old, Mr. Smith’s observation about merchants and businessmen remains timeless. But is the same statement true of computers? As we near the 2020 election, both parties are considering changes to the antitrust laws in response to seemingly unstoppable growth by marketplace leaders such as Facebook and Amazon. Particularly in light of the COVID-19 pandemic, consumer shopping is increasingly moving to online platforms and away from traditional bricks-and-mortar retailers. Are the antitrust laws – designed to combat the so-called robber barons of the late 19th Century – sufficient to keep up with a changing marketplace?

Amazon and other online merchants increasingly use a pricing model called dynamic pricing. First introduced on a large scale by American Airlines in the 1980s,[2] dynamic pricing utilizes computers to adjust pricing according to real-time factors, such as supply and demand. Today, this model remains dominant in the airline industry: the prices of a seat on a flight may change from day to day depending on number of seats remaining, route demand, and competitors’ pricing. For dynamic pricing to work properly, a company must rely on a sophisticated inventory management system, like those used by airlines and hotels. Today, advances in computer technology have made dynamic pricing widely available to e-commerce companies. These algorithms, in the blink of an eye, scan prices across the web and adjust its sales price accordingly.[3] Can artificial intelligence learn from the market and, without human interaction, conclude that the best strategy to maximize profits is to collude with other AI merchants? The answer, increasingly, is yes.[4] These computers learn to collude by trial and error and without communicating with each other. Does antitrust law have an answer to robots that learn parallel pricing?

A well-known alternative to traditional taxi cabs is Uber Technologies, Inc. (“Uber”).[5] Uber utilizes a form of dynamic pricing that it refers to as a “surge fare.” Surge fares are prices that increase during periods of high demand. The surge pricing calculated as a multiplier of the standard fare; the higher the demand, the larger the surge multiplier.[6] Surge fares will change in real time from moment to moment according to demand. The amount of the surge fare is calculated by Uber’s algorithms, so the drivers and passengers each see the same price during a period of high demand. Uber claims that its surge pricing is simply an application of supply and demand. It incentivizes its drivers, who are independent contractors, to take additional fares, thereby better ensuring that Uber can meet increased demand.

In 2016, an Uber customer brought an antitrust suit against Uber, alleging that surge pricing algorithm created a conspiracy between Uber and its drivers that was managed by Uber’s AI software. Meyer v. Kalanick,[7] 174 F. Supp. 3d 817, 820, 822-823 (S.D.N.Y. 2016). Although the case was ultimately sent to arbitration, where the arbitrator found in favor of Uber, the AI collusion theory caught the attention of Judge Rakoff, who, before sending the case to arbitration, denied Uber’s motion to dismiss. He wrote that the plaintiff had alleged that each Uber driver agreed with Uber to charge certain fares “with the clear understanding that all other Uber drivers are agreeing to charge the same fares.” 174 F. Supp. 3d at 824.

Although the hundreds of thousands of Uber drivers around the world have never once met together, (as Adam Smith might wryly note) this is the “genius” of Uber, Judge Rakoff held. Id. at 825. By utilizing the “magic of smartphone technology,” Uber was able to invite agreements “hundreds of thousands of drivers in far-flung locations. . . . The advancement of technological means for the orchestration of large-scale price fixing-conspiracies need not leave antitrust law behind.” Id. at 825-826.

The theory that computer algorithms can facilitate, or even implement, price-fixing schemes has not gone unnoticed in the world of criminal antitrust. As far as we are aware, there has been only one criminal antitrust case involving a computer algorithm, but in that case, the algorithm was only the mechanism by which a human-led conspiracy was implemented. In 2015, David Topkins, an art dealer from California, pleaded guilty to coordinating with other art dealers to use price-fixing algorithms for the sale of movie posters on Amazon.com.[8] Unlike the price-fixing AI that could operate without human involvement, Mr. Topkins’s case was decidedly more hum-drum: he admitted to agreeing with his competitors to use the algorithm to set the price of the artwork.[9] What is still unclear five years later, despite the explosion of online pricing algorithms and e-commerce, is how enforcers will view machine learning and where does liability stop? Can programmers be held liable for writing pricing algorithms?

The cases at each end of the spectrum are simple. The ones in the middle, however, may not be so easy. In a 2017 white paper from the OECD, the drafters wrote that “[f]inding ways to prevent collusion between self-learning algorithms might be one of the biggest challenges that competition law enforcers have ever faced[.]”[10] Regardless of the scope of the challenge, this issue will increasingly become one that enforcers and retailers can no longer ignore simply by refusing to play.

[1] The Wealth of Nations, Book I, Chapter X (1776).

[2] See R. Preston McAfee and Vera te Velde, Dynamic Pricing in the Airline Industry, Economic and Information Systems (2006).

[3] A Northeastern University research paper found that in 2015, algorithmic sellers covered one-third of the best-selling products offered by third party merchants on Amazon, and that algorithmic sellers’ pricing was 10 times more volatile than human-priced sellers. Le Chen, Alan Mislove, and Christo Wilson, An Empirical Analysis of Algorithmic Pricing on Amazon Marketplace, available at https://mislove.org/publications/Amazon-WWW.pdf.

[4] Emilio Calvano, Giacomo Calzolari, Vincenzo Denicolo, and Sergio Pastorello, Artificial Intelligence, Algorithmic Pricing, and Collusion, available at https://www.ftc.gov/system/files/documents/public_events/1494697/calzolaricalvanodenicolopastorello.pdf.

[5] Uber uses a smartphone application to match private drivers with passengers. The Uber app calculates and collects the fare, which it remits to driver, minus a licensing fee that the driver must pay for the driver’s use of the Uber app. Drivers and passengers cannot negotiate the price of a fare; it is set by the Uber app.

[6] See Uber Help – How Surge Pricing Works, https://www.uber.com/us/en/drive/driver-app/how-surge-works/

[7] 174 F. Supp. 3d 817 (S.D.N.Y. 2016). The plaintiffs sued Travis Kalanick, Uber’s CEO and founder personally in the complaint; however, for ease of reference, the defendant will be referred to in this article as Uber.

[8] United States v. Topkins, CR-15-201, at Dkt. 7 (N.D. Cal. 2015).

[9] Id. at ¶4(c).

[10] Big Data: Bringing Competition Policy to the Digital Era, at ¶84, available at https://one.oecd.org/document/DAF/COMP(2016)14/en/pdf (last accessed February 19, 2017).

On September 30, 2020, the Department of Justice (“DOJ”) announced its latest health care fraud take down, which was its first since the pandemic hit in March 2020. DOJ charged 345 doctors, medical professionals, owners/operators, and others with criminal health care fraud schemes implicating more than $6 billion in total alleged loss amount. Arriving six months into the COVID-19 pandemic, this health care fraud take down was DOJ’s largest to date, sweeping across the 51 judicial districts shown in this DOJ graphic:

2020 National Health Care Fraud and Opioid Takedown

Telemedicine: the COVID-19 Healthcare Fraud Flavor of the Pandemic

With $4.5 billion of the aggregate take down amount connected to alleged telemedicine fraud and only $800 million linked to opioids, DOJ shows that it is both focusing on COVID-19 related health care fraud and “following the money” as the pandemic continues. Telemedicine has obviously been a lifeline for patients during the pandemic as people are sheltering in place and avoiding leaving their homes. History shows that fraud schemes follow “opportunities” created by crisis and DOJ has now shown that it recognized early on that telemedicine fraud would explode during COVID-19.

As to be expected during a pandemic where telemedicine accelerated in relevance and billings to Medicare, opioid enforcement took a back seat during this take down. Two years ago, in October 2018, DOJ stood up the Appalachian Regional Prescription Opioid (ARPO) Strike Force to combat the opioid epidemic in parts of the country that have been particularly harmed by addiction.  As the fraud arising out of COVID-19 has taken priority, opioid enforcement efforts have been scaled back.

Lack of Access to Grand Juries

Also notable for this take down was DOJ’s reliance on charging via Complaint and Information. With grand juries not operating during much of the past six months, or only operating on a limited basis more recently, prosecutors were unable to present their cases to grand juries to obtain indictments. Instead, DOJ turned to charging via Complaint (which does not require the use of a grand jury) and also filed many Informations, which require the consent of the defendant and accompany a plea deal. While charging by Complaint is fairly straightforward, reaching the dozens of plea deals (as evidenced by the Informations) requires much more behind the scenes work and shows that DOJ was pressing to cut deals during the pandemic.

DOJ Announces Creation of “National Rapid Response Strike Force”

Concurrent with the announcement of the take down, the Health Care Fraud Unit of the Criminal Division’s Fraud Section announced the creation of National Rapid Response Strike Force (“NRRSF”). The NRRSF’s mission is to investigate and prosecute fraud cases involving “major health care providers” operating in multiple jurisdictions. The NRRSF will focus on “complex national schemes” and will coordinate with the Civil Division’s Fraud Section and Consumer Protection Branch, as well as its traditional partners in the local U.S. Attorney’s Offices, state Medicaid Fraud Control Units, the FBI and HHS-OIG. The NRRSF appears to be the new version of the prior sub-unit referred to as the Corporate Health Care Fraud Strike Force.

Examples of the types of matters under the NRRSF’s purview include a large-scale rural hospitals billing fraud matter indicted in the Middle District of Florida and the prior global resolution with Tenet Healthcare Corporation. Look for the NRRSF to be the new go-to DOJ unit to investigate corporate health care fraud.

Look for “Pay and Chase” to Continue Indefinitely 

While no one can quibble with the stats the Health Care Fraud Unit has amassed since its inception in 2007 – 4,200 defendants charged for over $19 billion in losses to Medicare – the current federal health care fraud law enforcement strategy is one of “pay and chase”. In other words, Medicare pays out claims quickly, and then DOJ tries to police fraudulent activity once the money has left federal coffers. Given that most of the fraudulent pay outs are never recouped through criminal forfeiture or restitution, this “pay and chase” system is inherently flawed as a method of preventing bad actors from fleecing the Medicare system. But don’t look for this to change anytime soon. But given the non-partisan appeal of fighting health care fraud, we expect increasingly more federal and DOJ resources to be committed to health care fraud investigations and prosecutions.

Department of JusticeRecoveries and settlements in False Claims Act (FCA) cases by the U.S. Department of Justice (DOJ) have accelerated in recent months and appear to be poised to rise dramatically as DOJ follows spending related to the pandemic recovery and federal stimulus efforts and bring additional resources to bear. Thus far in FY 2020 (which closes at the end of this month), health care FCA recoveries take up the lion’s share of these recoveries, although other types of federal spending have also led to significant recoveries.

Since March, DOJ enforcement efforts have resulted in quick actions related to health care, the pandemic response, and funding under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). DOJ has launched a task force focused on price gouging and hoarding of personal protective equipment (PPE), and DOJ has directed U.S. Attorneys’ offices to prioritize and prosecute criminal conduct related to pandemic spending, including fraud connected to the CARES Act’s Paycheck Protection Program.

The CARES Act created additional oversight authority residing with the Special Inspector General for Pandemic Recovery (“SIGPR”) and the Pandemic Response Accountability Committee (“PRAC”) composed of federal Offices of Inspector General. These new enforcement entities will provide additional oversight of federal funds to prevent and detect fraud, waste, abuse and mismanagement, which in turn may lead to additional enforcement actions by DOJ.

DOJ’s FCA Health Care Recoveries in FY 2020

As in recent years, a majority of DOJ’s FCA recoveries in FY 2020 have been in the health care field. Several of the year’s largest settlements were announced in July, as stated by DOJ:

  • A pharmaceutical company agreed to pay more than $642 million in settlements, resolving claims that it violated the FCA regarding the company’s alleged illegal use of foundations as conduits to pay the copayments of Medicare patients, and alleged payments of kickbacks to doctors (July 1 DOJ announcement).
  • A health care company and its parent companies agreed to pay a total of $600 million to resolve criminal and civil liability associated with the marketing of an opioid-addiction-treatment drug (July 24 DOJ announcement).
  • A major health services company and related care centers agreed to pay $122 million to resolve allegations of billing for medically unnecessary inpatient behavioral health services and paying illegal inducements to federal healthcare beneficiaries (July 10 DOJ announcement).
  • A specialty hospital in Oklahoma and a related management company and physician group agreed to pay $72.3 million to resolve allegations of improper relationships between the hospital and the physicians group, in violation of the Stark Law or “physician self-referral law,” resulting in violations of the FCA (July 8 DOJ announcement).

DOJ announced additional multimillion-dollar settlements in the health care field throughout the year. For example, on September 9, 2020, DOJ announced that a West Virginia hospital agreed to pay $50 million to resolve allegations concerning the Stark Law and Anti-Kickback Statute. And, in April, two testing laboratories agreed to pay $43 million and $41 million respectively to resolve allegations of medically unnecessary tests.

DOJ also reached settlements in the nursing home industry, which will face new scrutiny relating to the pandemic response and pre-existing DOJ initiatives. On July 13, 2020, DOJ announced that a nursing home management company and 27 affiliated facilities had agreed to pay $16.7 million to resolve allegations that they submitted false claims to Medicare for rehabilitation therapy services that were not reasonable or necessary. In April and February, health services companies agreed to pay $10 million and $9.5 million respectively, to resolve similar allegations.

On April 6, 2020, DOJ announced that a biopharmaceutical company based in Georgia that manufactures human tissue grafts would pay $6.5 million to resolve allegations that it submitted false commercial pricing disclosures to the U.S. Department of Veterans Affairs (VA). On March 12, 2020, DOJ announced that a Cincinnati-based company would pay $1.85 million to resolve allegations that it failed to schedule veterans’ medical appointments in a timely manner at two outpatient clinics, resulting in the submission of false claims to the VA.

Finally, earlier this month, DOJ announced a $10 million recovery from The Scripps Research institute, which settled claims that it had improperly charged NIH-funded research grants for time spent by researchers on non-grant related activities, including writing new grant applications.

DOJ’s FCA Government Contract Recoveries in FY 2020

This year’s settlements relating to government contracts illustrate the many enforcement perils to companies that violate laws or regulations during their performance of government contracts. For example:

Contract Specifications and Substandard Materials

On June 16, 2020, DOJ announced that a company had paid $10.9 million to resolve allegations it had sold substandard steel components for use by other contractors on U.S. Navy vessels and that a company employee had falsified test results for the components.

On September 10, 2020, DOJ announced that an asphalt contractor had agreed to pay $4.5 million to settle claims that it violated the FCA by misrepresenting the materials in the asphalt mix that it was using to pave federally funded roads in Indiana. These settlements illustrate the potential application of the federal FCA when substandard materials are provided in the federal supply chain, or whenever federal funds are involved.

Disaster Recovery

Enforcement efforts relating to disaster relief and government actions in response to the current pandemic may be expected based on similar enforcement that has followed past disaster recovery funding. On June 3, 2020, DOJ announced that it had intervened in a whistleblower lawsuit against an engineering company and certain disaster relief applicants, alleging that they submitted false claims to the Federal Emergency Management Agency (FEMA) for the repair or replacement of facilities damaged by Hurricane Katrina. DOJ announced that a university in Louisiana had agreed to pay $12 million to resolve related allegations.

Small Business Contracting

DOJ settlements each year also illustrate the perils to companies that violate small business contracting rules. On June 2, 2020, DOJ announced that a Tulsa, Oklahoma-based construction contractor had agreed to pay $2.8 million to settle allegations that it had improperly obtained federal set-aside contracts reserved for disadvantaged small businesses. And, on May 27, 2020, DOJ announced that an Illinois construction company had agreed to pay $1 million to resolve allegations that it had misrepresented its use of a small disadvantaged business to obtain a federally-funded construction contract.

Collusion and Bribery

In January 2020, several companies agreed to pay $29 million to resolve allegations that they violated the FCA by colluding to rig the bidding of an auction to purchase a U.S. Department of Energy’s non-performing loan to other companies. The government alleged that the defendants exerted pressure on the two other competing bidders to suppress their bids during the live auction.

And earlier this month, on September 15, DOJ announced that QuantaDyn Corporation and its CEO resolved criminal and False Claims Act liability from allegations that they engaged in a bribery scheme to steer government contracts for training simulators to the company. The company paid nearly $38 million in restitution, and its CEO separately paid $500,000 to resolve his personal FCA liability.

The Value of Corporate Compliance

The False Claims Act is a potent weapon for the government in its policing federal spending, contracts and grants. A final tally of DOJ’s FCA recoveries for the fiscal year will not be available for some time, but as of the end of the last fiscal year DOJ reported that FCA recoveries since 1986 totaled more than $62 billion. Each year, DOJ’s FCA cases are driven primarily by whistleblower filings. In January 2020, DOJ reported that of the $3 billion in recoveries in FCA cases in FY 2019, more than $2.1 billion were from lawsuits filed by relators under the FCA’s qui tam provisions, and during the same period, the government paid out $265 million to whistleblowers. DOJ reported that 633 qui tam suits were filed last fiscal year, averaging more than 12 new cases per week.

DOJ’s settlements each year highlight the value, from both a law enforcement and corporate perspective, of a robust corporate compliance program. Such a program is mandatory for anyone involved in the receipt of federal funds. FCA enforcement is constant and corporations must take proactive measures to ensure that their compliance efforts also remain constant, robust, and effective.

Spoofing

Two former commodities traders at a major global bank were convicted on federal wire fraud charges late Friday in a high profile – but rare partial win– for the government in a spoofing case. We previously discussed the theory of “spoofing” advanced by the Department of Justice against commodities traders, as well as the difficulty the government has faced in obtaining convictions in such jury trials. To recap, spoofing is the trading practice of bidding or offering with the intent to cancel such bids or offers before the orders are executed. A trader engages in spoofing by placing a large number of bids or offers on one side of the market (i.e., a buy order) that the trader will almost immediately cancel, thus moving the market in a desired direction. Then, the trader places orders on the opposite side of the market (i.e., a sell order) that the trader will execute to take advantage of the artificially high or low price the spoofed orders created. Although DOJ had previously been able to prosecute spoofing as a type of market manipulation under the wire fraud statute, The Dodd-Frank Act specifically identified spoofing as an illegal act in 2010.

In the instant case, the two traders, James Vorley and Cedric Chanu, were charged in 2018 not under Dodd-Frank, but under the wire fraud statute and with conspiracy to commit wire fraud under a spoofing theory. Later, the government tacked on sixteen additional counts of wire fraud affecting a financial institution. On Friday, Vorley and Chanu were acquitted of the wire fraud conspiracy but were convicted of the substantive wire fraud charges.

The government’s case, and partial win, is notable for at least three reasons.

First, the “compromise verdict” returned by the federal jury (which was comprised of only 11 members during deliberations due to COVID-19 related concerns) may provide the traders with colorable grounds for appeal.

Second, the government’s theory of the case was that the traders’ conduct was fraudulent and based on an intent to deceive, not that the traders made any particular false statement or representation (apart from the placing of the orders themselves). The defense has indicated they will appeal, and likely this issue will be revisited on appeal.

Third, the jury’s rejection of the government’s conspiracy charges underscores once again the difficulty the government has had in bringing fully successful spoofing cases. On the other hand, the jury’s rejection of the conspiracy charges may simply represent a reasoned rejection of the government’s evidence that the two traders worked together to spoof the market. As noted in our prior article, referenced above, the last spoofing case the government tried resulted in a mistrial; before then, the government had only obtained one conviction after a jury trial for spoofing. Of course, the government has been able to recently obtain pleas from defendants in several other cases.

A year ago, we discussed the government’s continued aggressive approach to spoofing prosecutions even after the last mistrial, both against traders and financial institutions.   Incidentally, it may be that one of the reasons the government has faced difficulty in successfully prosecuting spoofing cases is that the defendants are typically employees (or former employees) of large, multinational banks, with access to sizeable resources to finance their defenses, allowing their attorneys to leave no stone unturned in attacking the government’s case. This is rarely the case when defendants proceed to trial, even white-collar defendants. Although it achieved a partial victory, the government should expect defendants who are former traders at large financial institutions to continue to mount well-financed, sophisticated defenses in future cases.

As we have seen, the government’s previous setbacks did not deter it from bringing additional spoofing cases. There is no reason to think that the split verdict in Vorley and Chanu’s case on Friday will lead DOJ to back away from investigating and prosecuting spoofing cases. Indeed, DOJ undoubtedly views this result as a resounding victory. We expect to see the government continue to pursue commodities traders and their employers for spoofing.