Justia Securities Law Opinion Summaries

Mark Schena operated Arrayit, a medical testing laboratory in Northern California, which focused on blood tests for allergies. Schena marketed these tests as superior to skin tests, despite their limitations, and billed insurance providers up to $10,000 per test. To maintain a steady flow of patient samples, Schena paid marketers a percentage of the revenue they generated by pitching Arrayit’s services to medical professionals, often misleading them about the tests' efficacy. During the COVID-19 pandemic, Schena transitioned to COVID testing, using similar deceptive marketing practices to bundle allergy tests with COVID tests.The United States District Court for the Northern District of California denied Schena’s motion to dismiss the EKRA counts, arguing that his conduct did not violate the statute as a matter of law. The jury convicted Schena on all counts, including conspiracy to commit healthcare fraud, healthcare fraud, conspiracy to violate EKRA, EKRA violations, and securities fraud. The district court sentenced Schena to 96 months in prison and ordered him to pay over $24 million in restitution.The United States Court of Appeals for the Ninth Circuit reviewed the case and affirmed Schena’s convictions. The court held that 18 U.S.C. § 220(a)(2)(A) of EKRA covers payments to marketing intermediaries who interface with those who do the referrals, and there is no requirement that the payments be made to a person who interfaces directly with patients. The court also concluded that a percentage-based compensation structure for marketing agents does not violate EKRA per se, but the evidence showed wrongful inducement when Schena paid marketers to unduly influence doctors’ referrals through false or fraudulent representations. The court affirmed Schena’s EKRA and other convictions, vacated in part the restitution order, and remanded in part. View "United States v. Schena" on Justia Law

Community, the nation’s largest for-profit hospital system, obtained about 30 percent of its revenue from Medicare reimbursement. Instead of using one of the systems commonly in use for determining whether Medicare patients need in-patient care, Community used its own system, Blue Book, which directed doctors to provide inpatient services for many conditions that other hospitals would treat as outpatient cases. Community paid higher bonuses to doctors who admitted more inpatients and fired doctors who did not meet quotas. Community’s internal audits found that its hospitals were improperly classifying many patients; its Medicare consultant told management that the Blue Book put the company at risk of a fraud suit. Community attempted a hostile takeover of a competitor, Tenet. Tenet publicly disclosed to the SEC, expert analyses and other information suggesting that Community’s profits depended largely on Medicare fraud. Community issued press releases, denying Tenet’s allegations, but ultimately corroborated many of Tenet’s claims. Community’s shareholders sued Community and its CFO and CEO, alleging that the disclosure caused a decline in stock prices. The district court rejected the claim. The Sixth Circuit reversed. The Tenet complaint at least plausibly presents an exception to the general rule that a disclosure in the form of a complaint would be regarded, by the market, as comprising mere allegations rather than truth. The plaintiffs plausibly alleged that the value of Community’s shares fell because of revelations about practices that Community had previously concealed. View "Norfolk County Retirement System v. Community Health Systems, Inc." on Justia Law