Sunday, January 17, 2010

New York Hospital Official Pleads Guilty To Conspiring To Rig Bids

On January 12, 2010, Freddy Deoliveira, a New York Presbyterian Hospital (NYPH) purchasing official pleaded guilty to conspiring to rig bids on re-insulation services contracts for the hospital.

Mr. Deoliveira, who held various supervisory positions at the NYPH, pleaded guilty in U.S. District Court in Manhattan. According to the charge, between approximately October 2000 and March 2005, Mr. Deoliveira conspired with others to create the appearance that contracts at NYPH were awarded in accordance with NYPH’s competitive bid policy, when, in fact, they were not.

Mr. Deoliveira admitted that he designated which company would submit the low bid on a contract, and which company or companies would submit higher, complementary bids, to ensure that his designated company would be awarded the contract. To create the illusion of a competitive bidding process, Mr. Deoliveira’s co-conspirators would use each other’s letterhead to submit the high, noncompetitive bids.

In exchange for awarding the contracts to the designated bidder, Mr. Deoliveira received cash kickbacks from his co-conspirators.

The bid rigging violation with which Mr. Deoliveira is charged carries a maximum penalty of 10 years in prison and a $1 million fine. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victim of the crime, if either of those amounts is greater than the statutory maximum fine.

To date, seven individuals and three companies have pleaded guilty to charges arising out of the same investigation.

Attorney Commentary: In many (most) countries of the world, "kickbacks" are routine, expected and legal, even if not quite ethical. In such countries, sellers know that they will make no sales or get business unless a portion of the price is kicked back to the buyer's agent or the person making the referral, and companies know that their employees and agents are soliciting and accepting kickbacks. In the United States, the rules are different.

Here is a quick summary of 5 types of kickbacks that are illegal in the United States in almost all circumstances.

(1) It is illegal to pay a kickback for the referral of a patient or for medical services (and for other professions such as legal services). It is also illegal to deduct these improper kickbacks for tax purposes.

(2) It is illegal to pay a kickback to obtain government contracts.

(3) It is illegal for a publicly traded company to pay kickbacks that are deducted for U.S. tax purposes. In practical effect, this means that publicly traded companies cannot legally pay kickbacks in foreign countries, even if kickbacks are legal and necessary in those foreign countries.

(4) It is illegal for an employer to accept kickbacks from employees. Although it is illegal, it is an unfortunate fact that many employees are forced to pay kickbacks to their bosses just to get and keep a job in the U.S.

(5) It is illegal for any public official to solicit or accept kickbacks and/or bribes.

For people who are employed by companies, accepting kickbacks can also be prosecuted as an embezzlement from the company. The theory is that the employee is taking a benefit that should belong to the company. For example, the employee could have negotiated a discount instead of keeping the kickback for himself or herself.

There are numerous referral arrangements in businesses (commissions, referral fees in certain private businesses) that are not illegal. In fact, there are some referral fees that could be immoral or civilly wrongful but are not illegal. It is important for any licensed professional or person who bills the government or insurance companies to seek a legal opinion on whether the referral fee is legal under governing statutes, rules and regulations.

Posted by Tracy Green. Should you have any questions regarding your own situation or this post, you can email Tracy at Green & Associates in Los Angeles, California focuses their practice on the representation of licensed professionals, individuals and businesses in civil, business, administrative and criminal proceedings. She has handled hundreds of cases involving payments of referral fees or kickbacks. The firm website is:


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