Articles Posted in Fraud

Boston business litigation attorneys know that sometimes in large corporations, decisions may be made of which top officials may have no knowledge. teach.jpg

Yet, when Boston business lawsuits are filed, it is ultimately those individuals who may be held responsible.

And that is who the federal government is going after in its business litigation, alleging a multi-million dollar fraud scheme by the Boston-based Princeton Review (U.S. v. Princeton Review, 12-cv-6876). The government is alleging civil fraud against the company, which is well-known for providing preparatory guides for students getting ready to take tests like the GRE, SAT and GMAT.

Here’s what we know of the case so far:

The government had contracted with the Princeton Review to provide after-school tutoring to underprivileged children in poorly-performing schools in New York City between 2002 and 2010.

The city had been given federal grant money for the program, and paid out between $35 to $75 hourly per student for the service. But then in 2006, the government says aides and managers of the program started billing the schools for sessions that never took place. Students would fail to show up for the sessions, but the government was billed anyway.

In all, the company billed the city nearly $40 million. It’s not exactly clear though how much of that was allegedly fraudulent.

The managers and aides worked for a segment of the company that no longer exists – the Supplemental Educational Services division. That arm of the firm was closed two years ago.

In one instance, the government alleges the company charged the city for a tutoring session with some 75 children at a school in the Bronx. The problem was, that session reportedly took place on New Year’s Day. There were no classes that day.

Other cases reportedly showed that some instructors forged the signatures of students, fudged sign-in sheets and submitted phony certifications in order to carry on the ruse.

It is not clear what the higher-ups in the organization actually knew of the alleged fraud, but the government says an internal investigation was launched back in 2006. The findings of that probe, they said, did uncover discrepancies, but nothing was ever done to address them, the government says. In fact, the site director of the program reportedly encouraged other administrators within the company to commit the same fraud. These administrators were paid bonuses, depending on how many students attended the classes.

Attorneys for the government are seeking to be compensated three-fold for the damages, as well as an imposition of civil penalties.

While it’s going to be important for this company to hire an experienced business litigation attorney, the case also underscores the importance of having an attorney on retainer who can regularly examine the business activities for any potential legal pitfalls – and alert top administrators of the things they may not recognize as being a problem.
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While we won’t say we told you so, the government has announced a slew of Sarbanes-Oxley violations since we wrote about board of director duties on our Massachusetts Employment Lawyer Blog.

The Sarbanes-Oxley Act of 2002 requires companies and boards of directors to obey financial regulations meant to avoid corporate collapses such as Enron and WorldCom. One thing we didn’t mention was whistleblower protections — which is where the government landed with both feet this month on a number of companies. 182576_whistle.jpg

  • The U.S. Department of Labor found Bond Laboratories Inc. and its former CEO in violation of whistleblower protection provisions. The company has been ordered to rehire the employee and pay about $500,000 in back wages, interest and other damages. The company was accused of firing the officer after he objected to sales figures that misrepresented the company’s value to potential investors.

The company has 30 days to appeal the decision which was issued Sept. 15 by the Occupations Safety and Health Administration.

OSHA enforces the whistleblower portion of the Sarbanes-Oxley Act as well as 20 other laws protecting employees who report violations of laws regulating airlines, consumer products, financial reforms, health care reforms, nuclear energy, commercial motor carriers, environmental, railroad and maritime laws.

Employees who report corporate wrongdoing — whether it’s fleecing the government or unfair labor practices — are generally protected from employer retaliation. Though it can often take a Massachusetts employment law attorney to assert your rights. In many cases, back wages and other damages are available to employees who prove they were wrongly terminated.

  • On Sept. 14, the government ordered Bank of America to pay $930,000 in back wages, damages and interest to an employee fired for reporting suspected Sarbanes-Oxley violations. The employee had worked for Countrywide Financial Corp., which was purchased by B of A. The employee headed internal reviews that found widespread mail and bank fraud by Countrywide employees. The employee said those trying to report the fraud to the company’s employee relations department were frequently retaliated against. Ultimately, the employee was fired shortly after the merger. “It’s essential that American’s workers do not have to fear retaliation when reporting wrongdoing,” said OSHA’s Dr. David Michaels.

For those serving as a corporate board member, these cases illustrate the need to ensure compliance with the law. Sarbanes-Oxley also allows for the personal liability of board members in some situations. The whistleblower statute makes it that much more likely that the government will ultimately find out.

As an employee, you need to understand your rights. In many cases, you are protected from retaliation when reporting a dangerous or illegal condition. However, consulting an experienced Boston employment lawyer is your best bet when it comes to ensuring that those rights are protected.
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Bloomberg reports a judge has declined to immediately dismiss the never-ending lawsuit filed against Facebook by the Winklevoss twins.

Made famous as the subject of the movie “The Social Newtwork,” it stands as a cautionary tale for those dealing with business formation in Massachusetts. Cameron and Tyler Winklevoss claim Facebook was an idea they brought to founder Mark Zuckerberg while the three were students at Harvard. Their lawsuit was settled in 2008 for $65 million but they are seeking to reopen the lawsuit on the grounds that Facebook engaged in fraud by not providing an accurate valuation of the company.
A Massachusetts business startup attorney should always be used to form a corporation or other business formation matters. Complying with state and federal law can be complex. Ensuring the integrity of your business from claims by founding partners or others is critical to an entity’s long-term survival. Particularly when investors or partners are involved, getting in writing the business arrangement — complete with the claims and responsibilities of each party — can save a lifetime of headaches down the road. Too often, early business ventures are sealed with a handshake. We understand money is often a concern. But getting it right beats getting it done cheap. And foregoing legal advice is usually a costly mistake.

Facebook hired former White House spokesperson Joe Lockhart this month as it prepares for an Initial Public Offering and life as a publicly traded company. That could happen as early as next year. Fortune reported this month that the company’s value is expected to be $100 to $165 billion when it begins public trading.

Existing shares of the privately-held company are closely guarded and trade on special secondary markets, if at all. Those trades place the current market value at $85 billion. Most recently, the company has been providing employees with stock grants, rather than stock options, in an effort to keep shares of the company off the market. However, Securities and Exchange Commission rules require any company with 500 or more shareholders to publicly disclose finances and comply with many other rules that govern public corporations. Facebook is expected to hit that threshold early next year, which most think will finally push it to become public.

Facebook v. ConnectU Inc. is an extreme example. Facebook and the Winklevoss twins have fought the lawsuit in federal courts in San Francisco and Boston. The Massachusetts court has agreed to put its case on hold until the California ruling. Most recently, the U.S. Court of Appeals in San Francisco agreed to halt litigation while the twins ask the U.S. Supreme Court to reverse the dismissal of their claims. Attorneys for Facebook have asked that litigation end in light of the 2008 settlement.

The Supreme Court petition “should not stand in the way of resolving the last meritless motion that will end this case once and for all,” Facebook said in a filing. An April decision by the appeals court called the 2008 settlement “quite favorable” to the twins and ruled that it barred them from filing future lawsuits against the social networking giant.
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