The United States Government has sued a Lexington man, and the Lexington-based medical device company he owns, for violations of the False Claims Act, a federal law that prohibits people from submitting false or fraudulent claims for payment to the federal government.
On Tuesday, July 26, 2016, the United States filed a civil suit against Jerome Hahn and Telehealth Holdings, LLC, alleging that they defrauded the government by submitting false claims in connection with federal grants. According to the Complaint, filed in U.S. District Court, Telehealth received three grants from the federal government, worth over $600,000, to support the development of a sleep apnea monitoring system and the development of electronic pillboxes customized for specific patient populations, including cancer patients.
The Complaint alleges that Hahn and Telehealth committed fraud in connection with these grants, including by making false statements in the grant applications about Telehealth’s personnel, facilities, and accounting systems.
The Complaint also alleges that Hahn and Telehealth falsely stated in grant reports that they had spent the grant funds for purposes of the grants and in compliance with grant regulations. Instead, Hahn and Telehealth allegedly spent the grant money on personal expenses, such as meals at restaurants, a trip to Keeneland Racecourse, and interest payments on personal credit cards. Hahn and Telehealth also allegedly used grant money on business expenses not allowed under the grant regulations, including costs associated with marketing and promoting their products. Additionally, Hahn and Telehealth allegedly spent over $100,000 in grant funds purchasing foreign goods and services, even though grant regulations require grant recipients to use American goods and workers.
According to the Complaint, Telehealth also falsified entries in its accounting ledgers and created false invoices in order to conceal from the government that the federal grant funds had been misspent.
The Government contends that the false statements made in the grant applications, the grant reports, and the accounting ledgers constitute violations of the False Claims Act. If the defendants are found liable at trial, they would be responsible for paying three times the amount of loss proven at trial, plus additional penalties for each false claim.
In a related criminal case, Mr. Hahn pleaded guilty to conspiring to defraud the United States by making false claims in connection with grants that were awarded to Telehealth. On June 13, 2016, U.S. District Judge Danny C. Reeves sentenced Hahn to four months in prison and an additional six months on home detention. Hahn was also ordered to pay $222,037 in restitution to the National Institutes of Health.
The investigation was conducted by the United States Attorney’s Office for the Eastern District of Kentucky; the Federal Bureau of Investigation; the U.S. Department of Health and Human Services, Office of Inspector General; and the Internal Revenue Service, Criminal Investigation Division. Assistant U.S. Attorney Kate K. Smith represented the United States in the related criminal case. Assistant United States Attorneys Christine Corndorf and Carrie B. Pond are litigating the False Claims Act case on behalf of the Government.