Imagine you wake up one morning and discover that all of your personal and business accounts have been either taken or frozen by the federal government. Imagine the government emptying out all of your savings, including your 401(k) and other investment and retirement funds. Imagine your house being taken despite the homestead protection provided in your state.
In only the last few weeks, physicians, other healthcare providers, healthcare business owners, and others in the healthcare industry have woken up to this nightmare. In a radical policy change, the US Justice Department has begun to systematically execute asset forfeiture warrants and applying other tools unique to alleged healthcare fraud offenses.
In essence, the government has three major tools to take away assets of targets in healthcare investigations. One, despite homestead protection, the government can file a lis pendens against your house and any other real estate affiliated with your name. Even though the government will not make you literally leave the house, the government signals that it now has superior title to the property. Lis pendens literally means “pending lawsuit.” A lis pendens is a document filed and recorded with the records of real property deeds in your county and informs any potential purchasers that the house (or other property, including undeveloped land) is subject to a potential money judgment. In essence, the government is letting any possible buyers know that it intends to enforce its rights to seize or sell the property if and when it obtains a monetary judgment, fine, or financial penalty against you at the conclusion of the healthcare investigation against you. The practical effect of a lis pendens is to make your real property unmarketable. A potential buyer will do a title search on the property and walk away from the sale knowing that the property is subject to forfeiture to the government.
Two, the government is able to seize your money out of your accounts. For example, if you have a business account, a personal account, and an account that you share with your spouse, the government can empty out all three account types and can even take money you earned from entirely unrelated business activities. Asset forfeiture was traditionally seen as a way to seize assets that were used to assist in the commission of crimes or that were purchased or obtained through criminal activity. Indeed, criminal forfeiture for healthcare fraud is governed at the federal level by 21 U.S.C. § 982, which provides that, as part of the sentencing for the fraud, the person “shall . . . forfeit to the United States any property, real or personal, involved in such offense, or any property traceable to such property.” In other words, any money made as a result of the scheme, or any assets purchased with that same money, are subject to forfeiture.
Normally, the government begins any fraud investigation with the aim of recouping money that it believes was improperly obtained by the target/party. This process typically involves Grand Jury subpoenas for records from financial institutions, business partners, and accountants, as well as any affiliated entities that may have access to or knowledge of a target’s financial network. After this material is returned to the Grand Jury, federal agents and accountants conduct a forensic analysis. After the government has a full understanding of a target’s assets, it will attempt to calculate a preliminary monetary loss related to the criminal conduct that it intends to pursue via federal criminal indictment. It is at this point that agents and prosecutors will collaborate on a federal seizure warrant that will link the alleged illegal conduct and the resulting financial gain to the assets that were investigated and analyzed. Criminal seizure warrants, and the subsequent forfeitures that follow a conviction, must be done on a dollar-to-dollar tracing method. This means that in order for the money or item to be seized in must be clearly linked to the alleged fraud.
However, in practice, the government will often “seize first and ask questions later.” That is to say that the government is not required to proceed under the criminal law explained above and prove that the assets are connected to any alleged crime or wrongdoing beyond a reasonable doubt. Instead, the government may proceed under civil forfeiture rules. In civil forfeiture, the government will file a civil action “in rem” against the property itself (for example, a case might be titled “U.S. v. $1,700,000 in cash”). In a civil case, the government will only have to prove its case by a preponderance of the evidence, and the court will allow the government to freeze those assets while the case is pending so that you may not spend or otherwise dispose of them. It is important to note that the dollar-to-dollar tracing analysis discussed above for criminal forfeiture does not apply in the civil context. Civil asset forfeiture is governed by 18 U.S.C. § 984. The rules for civil forfeiture, much like the burden of proof in civil cases, are less stringent than criminal forfeiture guidelines. On the other hand, civil forfeiture comes with some important restrictions. First, the most potent part of civil forfeiture is that attachable assets do not have to be directly traceable to the alleged fraud in order to be seized. Assets that are subject to civil seizure/forfeiture are referred to as “fungible assets”- i.e. not the actual money that came in through the alleged fraud but an equivalent monetary amount or an asset of equivalent value. To be clear, this means that items that are “untainted” in the criminal context may still be seized civilly. If the government chooses to use this approach, the seized item must be sued “in rem” no later than one year from the seizure of the asset. This means that the related conduct must be charged within the same time period. The government cannot just hold onto these assets forever. However, civil forfeiture does not necessarily mean that any case brought against you will be civil in nature. In certain circumstances the government will elect to file a civil seizure against a fungible asset with the aim of investigating a matter that it believes to be criminal in nature. It will do this with the goal of finding enough evidence in one year to convert the civil seizure to a criminal seizure. Clearly, the purpose of this approach is to seize assets under a broad civil authority with the hope of eventually making a criminal case. The government will pursue this approach when it believes a target intends to hide or eliminate attachable assets.
In some cases, even a civil case is not required. The DEA, in particular, often proceeds not through judicial asset forfeiture but through a streamlined process of administrative asset forfeiture. Administrative forfeiture begins by the government simply providing notice of its intent to seize the assets in question. If a notice of interest in the property is not timely provided, the government may seize the assets without further action. If a notice of interest in the property is filed, the administrative asset forfeiture is converted to a judicial asset forfeiture. Clearly, if you receive a letter or other notice that the government intends to seize any property of yours, time is of the essence for you to hire an attorney to file a notice of your ownership interest in the property and represent you in the subsequent proceedings.
Even worse than traditional asset forfeiture, which seeks to seize all of the money and other property you own on the theory that it is connected to criminal activity, under the theory of substituted assets, the government is not limited to just taking those monies in your own name. Instead, the government may seize essentially any funds associated with your Social Security number and any account in which allegedly tainted money was transferred, and any accounts in which the suspected individual has signature authority. Substitute asset forfeiture allows the government to seize assets that are not directly traceable to any criminal or wrongful activity at all. If the government can establish that a certain amount of money should be forfeited, but it cannot seize all of that money from accounts or property maintained in your name, it may seek to seize “substitute assets” to cover the amount it believes it is owed. For example, if the government accuses you of engaging in five million dollars in Medicare fraud, but you now only have property and money resulting from the alleged illegal activity totaling three million dollars, it may seek to forfeit the other two million dollars from property or bank accounts held in your spouse’s name or that you have transferred to other family members or sold, even if those specific assets cannot be traced to your healthcare practice or businesses.
Three, especially when it comes to retirement accounts, investment accounts, IRAs and 401(k)s, the Justice Department prosecutors have the ability to freeze (but not seize) monies in those accounts. Under 18 U.S.C. § 1345, federal prosecutors may seek an injunction against any transfers of money out of one of these accounts if such transfer might result in the disposal or alienation of that money to move it out of the reach of the federal government for an eventual judgment, restitution, or fine. Again, as the statutory text explains, these harsh enforcement tools are almost exclusively limited to healthcare fraud investigations. An injunction freezing retirement and other assets through this process only applies when the person in question is accused of a banking law violation or federal health care offense.
The key to understanding how to effectively and legitimately protect your assets in a healthcare investigation lies in taking action quickly, effectively, and in a permitted manner. In some instances, assets may be protected by trusts. For example, if the defendant is a beneficiary of a spendthrift trust created by another person, those assets are excluded from forfeiture because they are not the defendant’s property. See United States v. Libretti, 38 F.3d 523, 530 n.8. The implication is that if the defendant created the trust for his own benefit, it would be subject to forfeiture. Also, an irrevocable trust created by the defendant for the benefit of another person prior to any criminal activity would not be subject to forfeiture (both because he would no longer own the assets and because those assets would not be the fruits of illegal activity).
Note that any trust is only protected if the assets are not transferred to it fraudulently. That is, trusts are only valid as against future creditors, not present ones. If the trust creator is already under investigation (or even if he or she is already committing the offense, thereby knowing the assets are subject to forfeiture), creating a trust at that time won’t work to protect the assets transferred to the trust.
Care must be taken with regard to your assets once you know you are under any federal investigation. Hiding assets from the government or lying about your ownership of certain property could compound your legal problems by leading to a charge of obstruction of justice. It is relevant to note that transferees of any assets may also be subject to such a charge, and will almost certainly be threatened with a charge of conspiracy to obstruct justice, if the third party knew the assets were forfeitable.
The general federal criminal statute related to obstruction of justice is 18 U.S.C. § 1503. This statute provides that “whoever . . . . corruptly or by threats or force, or by any threatening letter or communication, influences, obstructs, or impedes, or endeavors to influence, obstruct, or impede, the due administration of justice, shall be (guilty of an offense).” Persons are charged under this statute based on allegations that a defendant intended to interfere with an official proceeding, by doing things such as destroying evidence, or interfering with the duties of jurors or court officers.
A person obstructs justice when they have a specific intent to obstruct or interfere with a judicial proceeding. For a person to be convicted of obstructing justice, they must not only have the specific intent to obstruct the proceeding, but (1) the person must know that a proceeding was actually pending at the time, and (2) there must be a nexus between the defendant’s endeavor to obstruct justice and the proceeding, and the defendant must have knowledge of this nexus. It is important not to inadvertently make a business decision that implicates this type of alleged obstruction that could result in a criminal charge. Therefore, it is important to communicate with counsel prior to making significant financial decisions.In addition, such actions may lead to a charge of making a false statement to an agent of the federal government in violation of 18 U.S.C.§ 1001 – a felony that can lead to up to five years in prison in addition to any repercussions from the healthcare investigation itself.
The question many doctors, business owners, and healthcare practitioners are left with is, if the government can freeze all of my assets prior to trial or even indictment, how will I be able to pay for my legal defense? Recent Supreme Court decisions have attempted to clarify this issue. In 2014, in Kaley v. United States, the Supreme Court held that defendants indicted by a grand jury for health care fraud were not entitled to challenge the grand jury’s finding of probable cause in an effort to release assets that had been restrained and frozen by the federal government on the basis of that finding, even though the defendants needed those assets to pay for their legal defense. 571 U.S. 320. Only two years later, though, the Supreme Court clarified that assets could be unfrozen and used to pay for a legal defense in a healthcare fraud case if the assets in question were unconnected to the crime. In other words, the prosecutors could not use the doctrine of substituted assets to prevent the defendant from using money unconnected to the conduct at question to pay for her attorney. In order to protect your right to hire the attorney of your choice, then, it is important to maintain records and separate accounts for assets that you and your spouse own that are unconnected to your healthcare business so that you may access those funds in the event of a federal investigation.
Speak with an Experienced Health Care Fraud Defense Lawyer at Oberheiden, P.C.
Speak with a federal health care fraud defense lawyer as soon as possible. To schedule a free and confidential consultation with a senior defense lawyer at Oberheiden, P.C., call 888-519-4897 or request an appointment.
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