Early Warning Signs… And Resources

ORRICK, HERRINGTON & SUTCLIFFE

213/612-2204

www.orrick.com

BACKGROUND INTELLIGENCE, INC.

213/243-0707

www.backgroundintelligence.com

INITIAL BRIEFING

Start-up Surgery Center (not in operation) Two primary Partners (70% and 10%) Five other investors The consultant “Bob”

Pattern of financial funny business

Unsigned Agreement with Surgery Center

Marketing and management Develop new physician contacts Develop contracts with healthcare providers

Actual role (without Partner oversight) Managed all aspects of Surgery Center start-up Assisted in real estate lease negotiation Oversaw space build-out/construction Leased or purchased medical equipment/furnishings Hired staff Managed all financial and billing activity

OPEN HOUSE…celebrating grand opening of Surgery Center

01/17/14 Bob fired

Bob emptied out Surgery Center office, leaving “trash”

01/20/14 BRIEFING FROM PARTNERS

01/14/14

OPEN HOUSE…celebrating grand opening of Surgery Center

01/17/14 Consultant fired

Emptied out Surgery Center office, leaving “trash”

01/20/14 BRIEFING FROM PARTNERS

Chaos Computers, financial records and vendor information taken by consultant Muddled records Everyone under suspicion (including bank) Secure office (restrict access, change locks) Partners tapped out

Refinanced homes Loans (SBA loan)

Corporate attorney involvement Limited funds to pay investigators

Current assets Identify business entities Liens, judgments, or factors that may affect collections Identify the parties: complicit relationships and

business interrelationships Document others scammed by consultant Facts: benefit negotiations or influence collections

Proprietary databases Public records

Court search in each jurisdiction Recorder’s office

Social networking sites Title searches Telephone interviews

B (Bob’s dead dad)

SLF (Bob’s former

wife)

RM

JN

Nurse LB

AC

JG

R F. N

T J. T

LV

KL (aliases; Bob’s

fiancée)

MR

EKP

“BOB”

CFN (aliases; Bob’s wife)

VP (multiple aliases)

JO

GS

AAG

AAA, PC

MCA, LLC

SCSM, LLC

SCL, LLC

GA

GFA A, LLC

NHM S

SCPA

AAG AAA, PC MCA, LLC SCL, LLC NHM S SCPA EP AH CCAM SCSC

ARB SSI SSM SSI KRN SCSM, LLC SCS, LLC SCMSC SCS TLM GA GFA SM A, LLC LBn, LLC

SSI, LLC

Bob’s Companies Tied to Surgery Center

Bob’s Other Companies

LBn, LLC

EP

AH CCAM

SCSC

BOB

TLM

SCMSC

SCS

SM

SCS, LLC

ARB

SSI

KRN

SSM

CASE TYPE COMMENTS

8:04-MJ-005-UA-1 • Conspiracy • Illegal Kickback for Patient

Referral

GUILTY Letters of Support

6:11-bk-194-MJ Bankruptcy (Chapter 7) Discharged 08/29/2012

6:12-ap-011-MJ and 30-2011-004393-CU-BC-CJC

Breach of Contract (Related to Bankruptcy)

(Dr. S: Other Surgery Center) Bob and VP Dismissed: Closed

6:11-ap-020-MJ and 30-2009-003280-CU-BC-CJC

Breach of Contract (Related to Bankruptcy)

(M: Billing Service) Dismissed: Closed

30-2012-006215 Fraud (Dr. T: Other Surgery Center) Dismissed-with Prejudice

30-2010-003765-CU-CL-CJC Civil (Bank)

30-2010-003761-CU-CO-CJC Contract R Capital LLC

30-2010-003655-CU-BU-CJC Breach of Contract (Dr. CC: Other Surgery Center)

30-2010-003650-CU-BU-CJC Breach of Contract (Dr. DM): Other Surgery Center)

30-2010-003383-CL-UD-HNB Unlawful Detainer Bob and Nurse LB

LIENS

CREDITOR AMOUNT

Franchise Tax $29,878

Franchise Tax $1,310

Federal Tax Lien $7,000

Federal Tax Lien $9,449

JUDGMENTS

CREDITOR AMOUNT

$7,500

Dr. CC Other Surgery Center

$56,000

Dr. DM Other Surgery Center

$365,598

Dr. DM Other Surgery Center

$283,000

Using Dead Dad’s address

$2,500

01/20/14 INVESTIGATION BEGINS

01/21/14 Initial Investigative Findings…complex criminal case

01/22/14 Introduced Forensic Accountant

Bob’s accomplice still working in Surgery Center billing

01/24/14 Forensic Accountant hired: • Provide management accounting (new investors/bank) • Forensic accounting…criminal case

Introduced Computer Forensics Expert

Investigative Briefing: Partners, Corporate Attorney, Forensic Accountant, Computer Forensics Expert

01/26/14 Vetted prospective consultant…Bob’s replacement

Registered DBAs using names similar to

legitimate businesses (including the Surgery Center)

Opened checking accounts for fake companies

Got vendors to send payment to these

accounts…funds were deposited to Bob Dummied invoices and proposals

Some Surgery Center invoices paid twice

SBA loan payments wired to Bob Purchased or leased “shoddy” refurbished

medical equipment (no replacement parts)

Two unemployment insurance claims for

accomplices using fake company Exceeded budgeted $360,000 Tenant

Improvement Allowance with the building owner. Now Partners owe well over $1 million.

Bob asks doctors for money and doesn’t pay it back

“shuffling funds between accounts” pays with checks that bounce

Often claims to be putting together an independent surgery

center or group Doctors introduce Bob to other physician friends and

colleagues “He’d tell people not to tell others that he was paying them” “Odd” behavior

“Many doctors get conned by Bob”. “…lost hundreds of thousands…he lost his pension” “I’ve been screwed too” “It was like a Ponzi scheme” “It is obvious that we are dealing with a sophisticated

con man who knows how to read and use people and how to manipulate the system while staying one step ahead of the law”.

CCAM SM SCS SSI ARB SM, LLC

Dr. T Nurse LB MR VP Dr. S CFN Dr. CC Dr. VV Dr. DM

People Connected to Surgery Centers

Surgery Centers That Have Sued Bob for Breach of Contract/Fraud

Dr. S

Dr. T

Nurse LB

MR

VP

CCAM

CFN

SM

SCS

Dr. DM

Dr. CC

Dr. VV

ARB SM, LLC

Bob’s Other Surgery Center Scams

SSI

BOB

Complex money flow Needs fresh sources of incoming funds

Investors New surgery centers (victims) Bank accounts New vendors Medical equipment

Finds willing accomplices

Possible options available to the Surgery

Center What the Partners did

The Surgery Center… Bob’s company (entity in unsigned

agreement) is still operating Bob has opened a new surgical facilities

company Bob’s Facebook page

No panacea for dealing with fraud Lengthy, dedicated, persistent effort Leadership and coordination required