Feds refuse to release $125 million owed to Virginia law enforcement

- IRS holding up release of funds -

RICHMOND (June 5, 2013) - Federal officials have refused to release approximately $125 million that is owed to Virginia from a 2012 Medicaid fraud case Attorney General Ken Cuccinelli's office investigated.  The Virginia case led to the second largest Medicaid fraud settlement in U.S. history at the time.  Federal officials have said that the IRS has refused to properly fill out post-case paperwork for almost a year, which is holding up the disbursement intended for Virginia law enforcement.

Cuccinelli's office earned the money by being lead investigator in the fraud case. Although the money was the office's to keep, Cuccinelli hasbeen making plans for more than a year to use the majority of the proceeds for grants to local police and sheriffs' departments to buy needed equipment such as bulletproof vests, tactical vehicles, and police cars.  He has also requested that $20 million be set aside to create a perpetual fund for continuing training for Virginia's local prosecutors.

The $125 million is Cuccinelli's office's approximate share of a $198.5 million asset forfeiturethat was part of the $1.5 billion plea agreement reached with Abbott Laboratories in May 2012 (see the May 2012 news release).  Abbott had illegally marketed the prescription drug Depakote for non-approved uses.  Abbott paid the full amount of the forfeiture to the U.S. Treasury Department in October 2012, yet Treasury has refused to release the money owed to Virginia.

"During the eight months the Treasury Department has been withholding the money, they have been depriving Virginia law enforcement of tools to make their jobs safer," said Cuccinelli.  "The interest alone on Virginia's share of the money in those eight months would have totaled more than a half million dollars.  That interest could have purchased more than 1000 bulletproof vests for police officers and sheriffs' deputies."

The attorney general's office submitted an accounting of more than 38,000 man-hours it worked on the Abbott case - the most of any agency involved, and a number the federal government has not disputed.  Treasury Department guidelines call for the federal government to keep 20 percent of the $198.5 million as an administrative fee, then distribute the remainder in proportionto the hours expended by each agency involved in the investigation.  Despite repeated requests, the federal authorities have not revealed precisely how many hours federal agencies spent on the investigation.  However, based on what is known about the time other agencies spent on the case, it is estimated that Virginia's Medicaid Fraud Control Unit performed at least 80 percent of the investigative work (resulting in the estimated $125 million calculation).

Cuccinelli detailed the back-and-forth between his office and the federal government.  "In August 2012, I was informed by the U.S. Attorney's Office for the Western District of Virginia of a plan to allocate $95 million of the $198.5 asset forfeiture to Virginia.  They said it was the most any state had ever earned in a case and that Virginia should be satisfied with such a large amount of money.  However, our analysis of the Treasury guidelines indicated Virginia should receive approximately $125 million, $30 million more than the federal proposal.  The smaller Virginia share meant the federal government had notfollowed its own rules regarding the division of dollars and instead decided to change the rules in its own favor when it was time to distribute the money," said Cuccinelli. 

"Later, Treasury officials told us they wouldn't even turn over the $95 million because of the sequester.  This is despite the fact that it's not federal money, but money that a private defendant paid to settle a case - money which was to be turned over shortly thereafter to our office and the other agencies involved in the investigation. 

"Now the hold-up is the IRS, which, according to the Treasury Department, refuses to complete its paperwork so the money can be properly distributed.   The exact amount of the forfeiture was known since September 2011 and finalized in a May 2012 plea agreement.  It doesn't take a year to complete the paperwork.

"For months, we thought this was just incompetence by the IRS, but with its refusal to properly fill out fairly simple paperwork for an entire year, we are left to wonder if this involves more deliberate motives.  Virginians need to know that for eight months the administration has been withholding money that is supposed to be used to protect first responders' lives.  To date, Virginia has not received $125 million, or $95 million, or even $1 of these funds. 

"While the federal government has kept nearly $575 million in fines and asset forfeiture from the case for itself, it makes excuses and refuses to turn over the $125 million Virginiais due.The only reason the federal government has this moneyis because of a multi-year, 26-state investigation initiated and led by Virginia's Medicaid Fraud Control Unit. 

"My office has had a positive, long-standing working relationship with our federal partners to fight gang crimes, human trafficking, and financial crimes.  We want to continue that positive relationship, which is why we have been extremely patient in this matter.  However, our responsibility to the safety of the people of Virginia requires that we be patient no longer," said Cuccinelli. 

 

Cuccinelli is making this matter public to put pressure on the federal government to turn over the money immediately. 
   
Proposed uses for the money

In anticipation of receiving this money, more than a year ago Cuccinelli's deputies began to quietly talk with some local law enforcement officials to assess their needs.  From those discussions, the attorney general developed several proposals, including (this is a partial list):

• making crisis intervention training available to police departments, sheriffs' departments, correctional workers, fire/EMS workers, and other first responders, so they have the tools to respond to situations involving individuals struggling with mental illness;

• grants for local law enforcement agencies across Virginia to purchase a wide variety of needed equipment such as bullet proof vests, vehicles, firearms, bicycles, winter weather gear, nonlethal engagement devices, radio systems, and computer equipment; 

• funding specifically for fighting elder abuse and neglect, gang and gun crime reduction programs, providing healthy alternatives to gangs for kids, programs to prevent domestic violence and sexual assault, and creating a human trafficking task force; 

• ongoing training for law enforcement to help them investigate and interdict human trafficking and gang offenses;

• funding for investigation of  DNA evidence in court case files and police investigative files to identify perpetrators in unsolved cases or to exonerate those who may have been wrongfully convicted; 

• continuing education and training required of Virginia's local prosecutors; and 

• specialized equipment for the Office of the Attorney General's computer crimes section so it can more effectively investigate and prosecute Internet predators and crimes involving the creation and distribution of child pornography. 

Background

Virginia's Medicaid Fraud Control Unit (MFCU), part of the Virginia Office of the Attorney General, initiated and led an investigation of Abbott Laboratories regarding off-label use of the prescription drug Depakote. 

Although neither the whistleblowers nor the defendant in this case were located in Virginia, the whistleblowers came to Virginia because the MFCU has a national reputation for successfully investigating major national cases, such as the Purdue Parma Oxycontin case, the Octagon case, and others.

Following Virginia MFCU's initial investigation, the unit contacted the U.S. Attorney's Office for the Western District of Virginia because of their history of working together on such cases.  They then began a joint investigation.

MFCU investigators were assigned to the investigation full-time and spent more than four years and 38,523 man-hours on the investigation, traveling to 26 states to conduct interviews and sifting through more than one million records looking for evidence.

The investigation uncovered that Abbott illegally marketed Depakote for non-approved uses, including as an alternative to antipsychotics to treat dementia patients in nursing homes, and for schizophrenia.  The investigation also revealed that Abbott paid rebates to health care professionals and long-term care pharmacies for increasing their off-label use of Depakote.

In September 2011, Abbott agreed to the settlement that was ultimately submitted to the court in May 2012.  The IRS and the federal government have known for nearly two years the amount of asset forfeiture they would be dividing up when the final court order was entered in October 2012.