First Circuit Clarifies FCA Liability Standard for AKS Violations, Deepening Circuit Split
The First Circuit has issued its long-anticipated opinion in United States v. Regeneron Pharmaceuticals, Inc., clarifying the standard for establishing False Claims Act (“FCA”) liability based on Anti-Kickback Statute (“AKS”) violations. The First Circuit held that an AKS violation must be the “but-for” cause of a claim for it to be considered “false” under the FCA. In reaching this conclusion, the First Circuit sided with the Sixth and Eighth Circuits, positioning all three courts against the Third Circuit, which has held that a mere link between an AKS violation and a claim is sufficient to establish falsity under the FCA.
A copy of the opinion can be found here.
The First Circuit’s Opinion
Regeneron Pharmaceuticals, Inc. manufactures Eylea, a drug used to treat neovascular age-related macular degeneration (a/k/a, wet AMD). Regeneron allegedly donated over $60 million to an independent charity, the Chronic Disease Fund (“CDF”), which provides financial assistance to patients who need Eylea. Regeneron’s contributions to the CDF were allegedly intended to function as an indirect co-pay subsidy for patients, effectively inducing Medicare reimbursements for Eylea prescriptions and thereby violating the AKS.
On summary judgment, the government disputed the need to establish but-for causation between the alleged kickback and the submitted claim. Instead, it maintained that any claim involving a patient who benefited from an illegal payment or referral was tainted and should be considered false for purposes of the FCA. The First Circuit disagreed, relying on Supreme Court precedent interpreting the term “resulting from” as implying a presumptive but-for causation standard. In reaching its conclusion, the First Circuit rejected the government’s arguments in support of the lower “link” standard of causation.
The First Circuit rejected each of the government’s core contentions. First, the government contended that because the AKS imposes criminal liability without requiring proof that a claim was, in fact, influenced by a kickback, the same standard should apply in the civil FCA context. The First Circuit rejected this position, reasoning that FCA liability fundamentally differs from criminal liability and that the 2010 amendment to the AKS explicitly introduced a causation element that the government must meet. The First Circuit emphasized that while criminal liability under the AKS aims to prevent corruption in medical decision-making, the FCA’s focus is on financial recovery for false claims, requiring a more direct causal link. Thus, by requiring but-for causation, the First Circuit aimed to ensure that claims brought under the FCA are truly the product of illegal inducements rather than merely associated with them.
Second, the government contended that Congress enacted the 2010 amendment against a backdrop of case law that had linked AKS violations to FCA liability without requiring proof of but-for causation. The First Circuit, however, found no indication that Congress intended to eliminate the need for causation, concluding that the amendment merely established a new pathway for proving falsity without overriding existing legal principles regarding causation. Absent explicit language in the amendment removing the requirement of causation, the First Circuit declared, the default presumption of but-for causation should apply. It further noted that previous case law interpreting similar statutory language has consistently required a direct causal link, reinforcing the assumption that Congress intended the same standard to govern FCA claims predicated on AKS violations.
Finally, the government attempted to rely on legislative history, pointing to statements made by the sponsor of the 2010 amendment suggesting that the amendment was designed to ensure that all claims “resulting from” AKS violations were false. The First Circuit rejected this argument as well, noting that legislative history cannot override the plain meaning of statutory text. Rather, the First Circuit held, the phrase “resulting from” necessarily implies a but-for causation standard unless Congress explicitly provides otherwise. Here, the First Circuit reasoned that while legislative history can offer insight into congressional intent, it cannot contradict clear statutory language. Additionally, it underscored that a broad interpretation of “resulting from” would risk imposing liability even where an AKS violation had no actual influence on a submitted claim, a result inconsistent with the FCA’s purpose of targeting fraudulent claims.
What’s Next? Deepening Circuit Splits, Potential Supreme Court Intervention, and Lingering Constitutional Questions
As a threshold matter, this opinion raises the bar for the government to establish FCA liability in AKS-related cases, as it now must demonstrate that an illegal kickback was the direct cause of a false claim rather than merely showing an association between the two. Additionally, the ruling deepens an existing circuit split. With the First Circuit joining the Sixth and Eighth Circuits in requiring but-for causation, only the Third Circuit maintains the broader “link” standard. This divergence increases the likelihood that the Supreme Court will take up this issue to resolve the inconsistency among the Circuits. The potential for Supreme Court review and the deepening circuit split highlight just one of the many ways in which the FCA has recently taken on new prominence. This case unfolds against the backdrop of other developments, including the Trump administration’s stated intent to use the FCA to challenge DEI initiatives among government contractors and ongoing constitutional challenges to the FCA’s qui tam provisions. These developments will shape the future landscape of FCA litigation and compliance. Stakeholders should, accordingly, continue to monitor how courts and regulators navigate these evolving issues.
Corporate Transparency Act Update: Reporting Requirements Now Back in Effect
Beneficial ownership information (BOI) reporting requirements under the Corporate Transparency Act (CTA) are now back in effect. As a result, all entities subject to the CTA are once again obligated to file BOI reports with FinCEN.
Following the most recent order from the U.S. District Court for the Eastern District of Texas in Smith v. U.S. Department of Treasury, FinCEN’s regulations are no longer stayed. With that being said, FinCEN has extended the reporting deadline to March 21, 2025 (30 calendar days from February 19, 2025). In its recent notice extending the deadline, FinCEN also announced that during this 30-day period, reporting deadline modifications will be further assessed in order to reduce regulatory burdens on businesses.
While additional updates from FinCEN are expected prior to the March 21 deadline, reporting companies that were previously required to file before March 21 are currently obligated to file BOI reports by the extended deadline. Companies should continue to closely monitor for updates over the course of the next 30 days.
For information on filing, see our prior alert here.
For more information on the recent update, see the recent FinCEN Notice here.
A Deepened Divide: Appellate Court Joins False Claims Act Circuit Split in Favor of Health Care Defendants
On February 18, 2025, the United States Court of Appeals for the First Circuit issued its opinion in United States v. Regeneron Pharmaceuticals Inc., finding that, in Anti-Kickback Statute (AKS) cases, the government must show a claim would not have been submitted “but for” the AKS violation to establish False Claims Act (FCA) liability.1
This appeal stemmed from allegations that Regeneron Pharmaceuticals induced prescriptions of Eylea, an ophthalmological drug, by covering copayments for certain recipients of the drug. The government contended that the funding of copayments constituted kickbacks and therefore resulted in false claims made to Medicare in violation of the FCA. At issue for the First Circuit was the interpretation of “resulting from” in the 2010 amendment to the AKS, which provides that a “claim that includes items or services resulting from a violation of [the AKS] constitutes a false or fraudulent claim for purposes of [the FCA].”2 The Court ultimately decided that “statutory history provides no reason to deviate from the ordinary course, in which we treat ‘resulting from’ as requiring but-for causation” and that this interpretation would not render it difficult for the government to establish liability. 3
The First Circuit’s ruling is favorable for health care providers, as it sets a higher bar for the government to prove causation in FCA cases involving AKS violations. Nevertheless, the decision deepens a circuit split regarding the causation requirements of FCA claims arising from AKS violations. While this decision aligns the First Circuit with the Sixth and Eighth Circuits, the decision contrasts with the Third Circuit, which requires only a demonstration of a link “between the alleged kickbacks and the medical care received . . .”4 This circuit split will continue to persist until the Supreme Court addresses the issue. However, the timing of such a decision is uncertain, especially after the Supreme Court declined to hear a related appeal from the Sixth Circuit in 2023.5
As courts continue to take on this issue, health care providers and FCA litigants should closely monitor developments in this area, particularly if they operate in jurisdictions without controlling case law. Understanding the applicable causation standard is crucial for navigating FCA litigation effectively and staying informed will be key to managing potential risks and liabilities as the legal landscape evolves.
[1] United States v. Regeneron Pharmaceuticals Inc., No. 23-2086, 2025 WL 520466 (1st Cir. Feb. 18, 2025).
[2] See 42 U.S.C. § 1320a-7b(g).
[3] Regeneron Pharmaceuticals Inc., 2025 WL 520466, at *8-9.
[4] United States ex rel. Greenfield v. Medco Health Solutions, Inc., 880 F.3d 89, 93 (3d Cir. 2018).
[5] United States, ex rel. Martin v. Hathaway, 63 F.4th 1043 (6th Cir. 2023), cert. denied, No. 23-139, 2023 WL 6378570 (Oct. 2, 2023).
Court Ruling Reinstates Corporate Transparency Act Enforcement; Filing Deadlines Now Set
On February 18, 2025, the nationwide injunction against enforcing the Corporate Transparency Act (CTA) was “stayed” by Eastern District Court Judge Jeremy Kernodle (citing the Supreme Court’s ruling in Texas Top Cop Shop), and FinCEN has stated (in a February 18, 2025 notice) that the deadline for most reporting companies to make required filings is now March 25, 2025. Although FinCEN did not explicitly so state, it appears the March 25, 2025 deadline applies to reporting companies formed or registered between January 1, 2024 and February 17, 2025. Reporting companies formed or registered on or after February 18, 2025, must file within 30 days from the date of creation or registration.
In its notice, FinCEN stated that, during the next 30 days, it “will assess its options to further modify deadlines, while prioritizing reporting for those entities that pose the most significant national security risks. FinCEN also intends to initiate a process this year to revise the BOI reporting rule to reduce burden for lower-risk entities, including many U.S. small businesses.”
The government is not expected to appeal Judge Kernodle’s ruling. The next ruling that could alter the status quo (absent legislation, executive order, or new FinCEN rule) is likely to be following the oral arguments scheduled to occur on March 25, 2025 in the Texas Cop Shop case.
CNIPA Rejects 63 Attempts to Maliciously Register DeepSeek Trademarks
On February 24, 2025, China’s National Intellectual Property Administration (CNIPA) announced that it rejected 63 trademark applications attempting to maliciously register DeepSeek and graphic. CNIPA stated that, “some agencies are suspected of providing illegal services, with obvious intentions of ‘riding the wave’ and seeking improper benefits. CNIPA resolutely cracked down on such malicious applications.”
China has previously rejected en masse applications and ex-officio cancelled trademarks that have been maliciously applied for and registered, respectively. For example, in 2022, CNIPA cancelled trademarks for Olympic mascots and athletes for “infringing on the personality rights and other legitimate rights and interests of others, has caused significant adverse social impact, and damaged the good image of China’s strict protection of intellectual property rights.” CNIPA rejected 429 trademark applications, including those for Eileen Gu (谷爱凌 and homonyms). CNIPA also cancelled, ex-officio, 43 trademarks, 20 of which were for Eileen Gu.
The original announcement and full list of rejected applications is available here (Chinese only).
Compliance Still Matters: The Future of FCPA Enforcement
Shifts in Enforcement
On January 20, President Trump issued an Executive Order designating certain international cartels as Foreign Terrorist Organizations (FTOs) or Specially Designated Global Terrorists (SDGTs). As stated in the order, it is now U.S. policy “to ensure the total elimination of these organizations’ presence in the United States and their ability to threaten the territory, safety, and security, of the United States through their extraterritorial command-and-control structures.”
On February 5, Attorney General Pamela Bondi issued fourteen memos on new enforcement priorities. Notably, the “Total Elimination of Cartels and Transnational Criminal Organizations” memo (the “Directive”) directs the DOJ to eliminate cartels and transnational criminal organizations (TCOs). The Directive requires the DOJ’s FCPA Unit to “prioritize investigations related to foreign bribery that facilitates the criminal operations of cartels and [TCOs],” shifting “focus away from investigations and cases that do not involve such a connection.” The Directive references examples, including “bribery of foreign officials to facilitate human smuggling and the trafficking of narcotics and firearms.”
On February 10, President Trump issued an Executive Order that: (1) pauses enforcement of the FCPA for an 180-day period; (2) directs the DOJ to issue revised guidance around FCPA enforcement, consistent with the administration’s national security and foreign affairs interests; (3) calls for the DOJ to review all open and pending FCPA investigations and enforcement actions, taking appropriate action as aligned with the order’s objectives; as well as (4) contemplates the DOJ reviewing prior enforcement actions to determine if “remedial measures” are appropriate.
Together, these actions demonstrate a profound shift in FCPA enforcement by moving away from traditional corporate corruption within otherwise legitimate industries to organized criminal syndicates. Companies are no doubt questioning the implications of these recent developments. Below we examine case studies of what these new enforcement areas may look like and offer advice for how companies can prepare for these enforcement shifts.
Case Studies
The shift in enforcement priorities on cartels and TCOs can be interpreted broadly, which may impact how companies evaluate their operations, especially those companies with activities in jurisdictions with heightened risks of cartel and TCO influence.
Lafarge
In October 2022, Lafarge S.A., a French multinational cement company, pleaded guilty in the United States to charges of conspiring to provide material support to designated foreign terrorist organizations, specifically ISIS and the al-Nusrah Front. From 2013 to 2014, Lafarge’s Syrian subsidiary made payments totaling approximately $5.92 million to these groups to maintain operations at its cement plant in Jalabiya, Syria. These payments were intended to secure protection for employees, ensure continued plant operations, and gain a competitive advantage in the Syrian cement market. As part of the plea agreement, Lafarge agreed to pay $778 million in fines and forfeitures. This case marked the first instance of a corporation being charged and pleading guilty in the U.S. to providing material support to foreign terrorist organizations.
According to then Deputy Attorney General Lisa Monaco, the case sent a “clear message to all companies, but especially those operating in high-risk environments, to invest in robust compliance programs, pay vigilant attention to national security compliance risks, and conduct careful due diligence in mergers and acquisitions.”
Chiquita
In March 2007, Chiquita Brands International, a major U.S. banana producer, pleaded guilty to charges of engaging in transactions with a designated terrorist organization. The company admitted to paying over $1.7 million between 1997 and 2004 to the United Self-Defense Forces of Colombia (AUC), a paramilitary group recognized by the U.S. government as a terrorist organization since 2001. These payments were purportedly made to protect Chiquita’s employees and operations in Colombia’s volatile regions.
Despite the AUC’s designation as a terrorist organization, Chiquita continued the payments, rationalizing them as necessary for employee safety. Internal documents revealed that company executives were aware of the legal and ethical implications but proceeded with the payments, describing them as the “cost of doing business in Colombia.” As part of a plea agreement with the DOJ, Chiquita consented to a $25 million fine and five years of corporate probation. According to then U.S. Attorney Jeffrey A. Taylor, “[f]unding a terrorist organization can never be treated as a cost of doing business…American businesses must take note that payments to terrorists are of a whole different category. They are crimes. But like adjustments that American businesses made to the passage of the [FCPA] decades ago, American businesses, as good corporate citizens, will find ways to conform their conduct to the requirements of the law and still remain competitive.”
Although the Lafarge and Chiquita cases turned on violations of anti-terrorism laws, they underscore the significant challenges multinational corporations face when operating in high-risk jurisdictions, especially those companies with complex global supply chains, third party engagements, and/or local government interaction in these regions. Further investment in compliance under these circumstances is advisable given the heightened risks these companies may face.
What Should Companies Keep In Mind?
The Directive and related Executive Orders should not be interpreted as a repeal of the FCPA or FEPA, nor a nullification of the importance of compliance. Both the FCPA and FEPA remain valid and fully in force despite the 180-day enforcement pause, meaning that companies subject to the FCPA are still required to comply with the statute’s provisions. Maintaining robust, well-resourced, and effective compliance programs is not only essential but also expected, regardless of shifting enforcement priorities.
Companies should consider the following issues as they navigate this shift:
Voluntary Self-Disclosure. The Criminal Division’s Corporate Enforcement and Voluntary Self-Disclosure policy remains in place. This policy lays out the benefits – ranging from reduced criminal or monetary penalties to non-prosecution or deferred prosecution agreements – of self-reporting, assuming the standards for voluntary self-disclosure are met. The DOJ’s Whistleblower Pilot Program also remains intact; companies should continue to ensure that internal whistleblower programs are adequately staffed and complaints timely addressed.
Foreign Legal Frameworks. Many countries, including the U.K. and France, have enacted anti-bribery laws that have a broad reach and continue to rigorously enforce those laws. As the U.S. shifts its FCPA enforcement focus, especially towards non-U.S. companies, foreign regulators may increase scrutiny on U.S. entities. Additionally, the U.S. remains obligated under the OECD’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, which requires signatories to criminalize bribery involving foreign government officials, potentially causing friction with the administration’s new enforcement directives.
Broader Discretion for United States Attorney’s Offices’ (USAOs). The Directive authorizes USAOs to pursue FCPA cases involving cartels or TCOs with just 24-hours of notice to the DOJ’s FCPA Unit, removing the requirement to first obtain approval from the DOJ’s Criminal Division’s Fraud Section. This arguably grants USAOs more discretion and flexibility to pursue FCPA cases linked to cartels and TCOs, which could result in increased FCPA enforcement activity following the initial 180-day pause.
Current Open and Pending FCPA Matters. There is no indication that ongoing or pending FCPA investigations and enforcement actions will be immediately closed. Rather the February 10 Executive Order instructs an internal review of current FCPA investigations and enforcement actions in light of shifting priorities. Regardless, companies under investigation by the DOJ for potential FCPA violations should not assume dismissal is a foregone conclusion.
Statute of Limitations. The FCPA’s anti-bribery provisions carry a five-year statute of limitations, while the accounting provisions have a six-year limit. These periods can be extended while DOJ seeks foreign evidence under Mutual Legal Assistance Treaty requests. Recent, ongoing, or future violations could still be fair game under the current administration, regardless of refocused enforcement priorities, as well as the next administration.
SEC Enforcement. While many may anticipate that the SEC will follow suit, announcing similar priority shifts to FCPA enforcement as the DOJ, the SEC, at present, appears to be business as usual enforcing FCPA violations. In other words, issuers falling under the SEC’s jurisdiction should continue to be mindful of their obligations under the FCPA.
Compliance Program Assessment. Companies should continue to evaluate their risk profiles by assessing their industry sector, where they operate, the extent of third-party engagements, interactions with government officials, the current regulatory landscape, and other emerging risks they may face. Under forthcoming guidance, companies may need to conduct a more targeted assessment of their activities in higher-risk markets for cartel and TCO involvement, considering specific business activities and interactions that could expose the company to heightened risks associated with cartels and TCOs. As a result, companies may identify potential gaps in their compliance programs, leading them to, for instance, improve financial oversight, refocus on employee training and internal communications, revise third party due diligence processes and contractual terms and conditions, and/or enhance internal controls around suppliers, vendors, local partners, and other third parties.
Takeaways
Effective and robust compliance programs help to mitigate not only bribery and corruption risks, but also money laundering, sanctions issues, human rights violations, and financial fraud risks. Duties of loyalty and oversight responsibilities for boards of directors require implementing a range of internal compliance controls, including effective reporting channels, to assess company risks. Compliance frameworks help promote fairness across a company’s operations, including through, for instance, employee incentive programs that encourage ethical behavior. Further, comprehensive compliance measures facilitate the management of third-party engagement risks through diligent vetting, ongoing monitoring, and stringent payment controls.
Compliance is not only good business, it is insurance in the event of enforcement. The DOJ has consistently given credit to companies with robust compliance programs when considering enforcement resolutions, monetary penalties, and post-resolution compliance obligations. Companies with strong compliance programs are better positioned to negotiate favorable outcomes in the event enforcement actions arise, making proactive investment in compliance crucial.
Compliance still matters. While the recent shift in enforcement priorities is important, it is not a repeal of the FCPA or FEPA, nor is it a license to stop investing in compliance. Well-designed, effective compliance programs expedite efficient responses to new enforcement trends. Companies should continue to ensure their compliance programs align with the DOJ’s Evaluation of Corporate Compliance Program guidance and consider using the 180-pause to reassess the effectiveness of their compliance programs and cultures as recent directives and orders usher in FCPA enforcement shifts.
Federal Court in Florida Clarifies Chapter 93A, Section 11 Claim Pleading Requirements
The United States District Court for the Middle District of Florida recently addressed the pleading requirements for Chapter 93A, Section 11 claims in the case of Liberty Mut. Ins. Co. v. Compex Legal Servs. Liberty sued Compex for allegedly breaching their master services agreement (MSA) by overbilling for services and for unallowable charges, not refunding overbilled or unallowable amounts, failing to honor audit rights, and imposing extracontractual conditions on Liberty.
In addition to common-law claims, Liberty filed a Chapter 93A, Section 11 claim, which Compex moved to dismiss. Compex argued that Liberty failed to plead (1) extortionate conduct, (2) damages beyond the alleged breach of contract, and (3) a factual connection to Massachusetts. The district court was not persuaded by these arguments and denied the motion.
First, the court recognized that an act is unfair under Chapter 93A, Section 2 if it (i) falls “within at least the penumbra of some common-law, statutory, or other established concept of unfairness,” (ii) “is immoral, unethical, oppressive, or unscrupulous” and (iii) “causes substantial injury to consumers [or competitors or other businessmen].” The court noted that conduct generally must have an extortionate quality to transform a breach of contract into an unfair business practice. The court concluded that Liberty adequately alleged this by asserting that Compex had tried to impose its extracontractual conditions on Liberty as a prerequisite for conducting an audit, which was extortionate.
Second, the court disagreed with Compex’s assertion that Massachusetts case law precluded Liberty from proving causation and harm arising from Compex’s alleged extortionate conduct for Rule 12(b)(6) purposes. The case law cited was distinguishable based on Liberty’s complaint and, absent Massachusetts case law requiring Liberty to assert “unique” Chapter 93A damages, the court concluded that Compex did not meet its burden under Rule 12(b)(6) to support its argument.
Third, the court determined that Compex failed to prove that the alleged unfair acts did not occur “primarily and substantially” in Massachusetts, as required by Section 11. Liberty’s complaint did not specify the location of the acts, and Compex did not provide any other facts for consideration. The court ruled that the “primarily and substantially” argument was an affirmative defense not proper to consider under the circumstances, but noted it could be raised in a motion for summary judgment.
This decision underscores the fact-dependent nature of unfairness under Chapter 93A, Section 2, and the “primarily and substantially” requirement for Section 11 claims. The burden of proving unfairness rests with the plaintiff, while the burden of proving location rests with the defendant. While a simple breach of contract does not normally rise to the level of a 93A violation, when that breach is being used to try to extort additional benefits or opportunities, that can result in 93A liability.
Updated Guidance on the Corporate Transparency Act and Beneficial Ownership Information Reporting Requirements
The Corporate Transparency Act (CTA) and the Financial Crimes Enforcement Network’s (FinCEN) enforcement of the CTA’s beneficial ownership information (BOI) reporting requirements have been the subject of numerous pending legal challenges that have affected compliance dates. Following a recent court decision to stay its injunction, FinCEN has updated guidance resuming its enforcement of BOI reporting requirements. Consequently, the vast majority of non-exempt reporting companies must file initial, amended, and/or corrected BOI reports by March 21, 2025, and as set forth below in the FinCEN Guidance:
For the vast majority of reporting companies, the new deadline to file an initial, updated, and/ or corrected BOI report is now March 21, 2025. FinCEN will provide an update before then of any further modification of this deadline, recognizing that reporting companies may need additional time to comply with their BOI reporting obligations once this update is provided.
In addition, reporting companies that previously received a different reporting deadline or are involved with certain ongoing litigation should be aware of the additional FinCEN Guidance below:
Reporting companies that were previously given a reporting deadline later than the March 21, 2025 deadline must file their initial BOI report by that later deadline. For example, if a company’s reporting deadline is in April 2025 because it qualifies for certain disaster relief extensions, it should follow the April deadline, not the March deadline.
As indicated in the Alert titled, “Notice Regarding National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.),” Plaintiffs in National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.) — namely, Isaac Winkles, reporting companies for which Isaac Winkles is the beneficial owner or applicant, the National Small Business Association, and members of the National Small Business Association (as of March 1, 2024) — are not currently required to report their beneficial ownership information to FinCEN at this time.
Additionally, moving forward, any new reporting company formed (or foreign reporting company registered) will have 30 days from the date of its formation (or its registration in the case of foreign entities) to file its initial BOI report.
As with past developments, the CTA’s future remains uncertain, and possible Congressional and/or further court actions could delay, change, or eliminate beneficial ownership reporting requirements.
DOJ Reform on Collision Course: EDNY’s Netflix ‘Evidence’ and FBI Misconduct Under Scrutiny
As the Department of Justice undergoes a seismic shift under the Trump administration, prosecutors in the Eastern District of New York (EDNY) find themselves at the center of controversy over the prosecution of OneTaste co-founder Nicole Daedone and former sales leader Rachel Cherwitz. The case, which invokes human trafficking laws against meditation instructors, is emerging as a key test of the DOJ’s evolving priorities and its commitment to FBI reform.
The government’s attempt to introduce content from a Netflix documentary as trial evidence—journal entries created specifically for the streaming platform’s 2022 production—has already drawn scrutiny, particularly as the film predated the indictment by only a few months. With allegations of FBI misconduct also mounting, this prosecution may soon face the same intense DOJ oversight that recently rocked the Southern District of New York (SDNY).
Mounting Evidence of FBI Misconduct
A formal complaint filed with multiple federal oversight bodies by OneTaste’s legal team—led by former senior DOJ prosecutor Paul Pelletier—alleges a “pervasive pattern of prejudicial investigatory misconduct.” The 36-page document details allegations against FBI Special Agent Elliot McGinnis, including:
Participation in Netflix productions while investigating targets
Instructing witnesses to delete evidence
Using personal email accounts to evade oversight
Filing misleading affidavits
Suppressing Brady material
Illegally obtaining and utilizing attorney-client privileged materials
Despite defense motions for dismissal and requests for an evidentiary hearing into the FBI’s conduct, EDNY trial judge Diane Gujarati has thus far declined to intervene. However, with the expected confirmation of incoming FBI Director Kash Patel, this case could soon find itself under heightened scrutiny. Patel, whose nomination cleared the Senate Judiciary Committee on February 13, has signaled a commitment to rooting out political bias within the bureau. Senator Chuck Grassley, in supporting Patel’s confirmation, characterized the FBI as being “badly infected with political decision-making” and emphasized the need for transparency and accountability.
The SDNY Shake-Up and Its Implications for EDNY
The upheaval in the SDNY provides a stark warning to EDNY prosecutors. On February 10, Acting Deputy Attorney General Emil Bove ordered SDNY to dismiss corruption charges against New York City Mayor Eric Adams, citing two primary concerns: improper interference with Adams’ 2025 reelection campaign and the diversion of prosecutorial resources away from violent crime and immigration violations.
This decision ignited a firestorm within SDNY, culminating in the resignation of Acting U.S. Attorney Danielle Sassoon after she appealed directly to Attorney General Pam Bondi. DOJ officials responded swiftly, accusing Sassoon of pursuing a “politically motivated prosecution” based on “aggressive” legal theories. The Adams case was subsequently reassigned to DOJ headquarters in Washington, D.C., and seven SDNY prosecutors were terminated in the fallout.
SDNY’s long-standing reputation for operating with relative independence—often referred to as the “Sovereign District of New York”—appears to be a thing of the past under the current DOJ. EDNY prosecutors, who have historically enjoyed similar autonomy, now face the prospect of increased oversight as they navigate this high-profile case.
The Human Trafficking Paradox
On February 5, Attorney General Bondi issued directives instructing federal prosecutors to focus on “the most serious, readily provable offenses,” emphasizing illegal immigration, transnational crime, and human trafficking. Yet, as this directive takes effect, EDNY prosecutors continue to invest significant resources in a novel, single-count forced labor conspiracy case against wellness educators under the Trafficking Victims Protection Act (TVPA). The government’s untested theory of “coercive control” as a form of trafficking has drawn criticism from legal experts, who argue that it blurs the distinction between social pressure and criminal coercion.
The case against OneTaste presents a paradox: at a time when the DOJ is pivoting towards dismantling actual human trafficking operations, EDNY’s six-year-long pursuit of this prosecution may soon come under question. The precedent set by the SDNY shake-up suggests that DOJ leadership is willing to intervene aggressively when a prosecution is deemed misaligned with national priorities.
A Trial Under Increasing Pressure
With jury selection set to begin on May 5, 2025, the ground beneath the OneTaste prosecution is shifting rapidly. Judge Gujarati’s refusal to schedule additional pre-trial conferences suggests confidence in the case, but the broader DOJ realignment paints a different picture.
The question now is not just whether this case will proceed to trial, but whether EDNY prosecutors will maintain their current course in the face of growing federal scrutiny. As the DOJ consolidates control over its regional offices and refocuses its priorities, EDNY must weigh its prosecutorial independence against the new realities taking shape in Washington. If SDNY’s recent upheaval serves as any indication, the days of unchecked autonomy for federal prosecutors in New York may be numbered.
U.S. v. Cherwitz, et al., No. 23-cr-146 (DG) (E.D.N.Y.)
https://natlawreview.com/article/netflix-content-becomes-federal-evidence-ednys-onetaste-prosecution-faces-scrutiny
OIG complaint regarding FBI Agent Misconduct
“Claims” Under the FCA, §1983 Claim Denials on Failure-to-Exhaust Grounds, and Limits to FSIA’s Expropriation Exception – SCOTUS Today
The U.S. Supreme Court decided three cases today, with one of particular interest to many readers of this blog. So, let’s start with that one.
Wisconsin Bell v. United States ex rel. Heath is a suit brought by a qui tam relator under the federal False Claims Act (FCA), which imposes civil liability on any person who “knowingly presents, or causes to be presented, a false or fraudulent claim” as statutorily defined. 31 U. S. C. §3729(a)(1)(A). The issue presented is a common one in FCA litigation, namely, what is a claim? More precisely, in the context of the case, the question is what level of participation by the government in the actual payment is required to demonstrate an actionable claim by the United States. The answer, which won’t surprise many FCA practitioners, is “not much.”
The case itself concerned the Schools and Libraries (E-Rate) Program of the Universal Service Fund, established under the Telecommunications Act of 1996, which subsidizes internet and other telecommunication services for schools and libraries throughout the country. The program is financed by payments by telecommunications carriers into a fund that is administered by a private company, which collects and distributes the money pursuant to regulations set forth by the Federal Communications Commission (FCC). Those regulations require that carriers apply a kind of most-favored-nations rule, limiting them to charging the “lowest corresponding price” that would be charged by the carriers to “similarly situated” non-residential customers. Under this regime, a school pays the carrier a discounted price, and the carrier can get reimbursement for the remainder of the base price from the fund. The school could also pay the full, non-discounted price to the carrier itself and be reimbursed by the fund.
The relator, an auditor of telecommunications bills, asserted that Wisconsin Bell defrauded the E-Rate program out of millions of dollars by consistently overcharging schools above the “lowest corresponding price.” He argued that these violations led to reimbursement rates higher than the program should have paid. His contention is that a request for E-Rate reimbursement qualified as a “claim,” a classification that requires the government to have provided some portion of the money sought. Wisconsin Bell moved to dismiss, arguing that there could be no “claim” here because the money at issue all came from private carriers and was administered completely by a private corporation.
Affirming the U.S. District Court for the Eastern District of Wisconsin, the U.S. Court of Appeals for the Seventh Circuit rejected Wisconsin Bell’s argument, holding that there was a viable claim because the government provided all the money as part of establishing the fund. Less metaphysically, it also held that the government actually provided some “portion” of E-Rate funding by depositing more than $100 million directly from the U.S. Treasury into the fund.
Justice Kagan delivered the unanimous opinion of the Supreme Court, affirming the Seventh Circuit on the narrower ground that “the E-Rate reimbursement requests at issue are ‘claims’ under the FCA because the Government ‘provided’(at a minimum) a ‘portion’ of the money applied for by transferring more than $100 million from the Treasury into the Fund.” It is important to recognize that this amount was quite separate from the funds involved in the core program at issue. Instead, it constituted delinquent contributions collected by the FCC and the U.S. Department of the Treasury, as well as civil settlements and criminal restitution payments made to the U.S. Department of Justice in response to wrongdoing in the program. This nonpassive role by the government was enough to satisfy the Court that the money was sought through an actionable “claim.”
Rather blithely, Justice Kagan analogizes these government transfers to “most Government spending: Money usually comes to the Government from private parties, and it then usually goes out to the broader community to fund programs and activities. That conclusion is enough to enable Heath’s FCA suit to proceed.”
This conclusion suggests that quibbling about what constitutes a “claim,” where government participation in payment is peripheral, is unlikely to provide an effective avenue for defending FCA lawsuits. But wait! Before closing the discussion, we must turn to the concurring opinion of Justice Thomas, who was joined by Justice Kavanaugh and, in part, by Justice Alito. They note that the Court has left open the questions of whether the government actually provides the money that requires private carriers to contribute to the E-Rate program and whether the program’s administrator is an agent of the United States. Thomas’s suggestion, in attempting to reconcile various Circuit Court opinions as to the fund, is that an FCA claim must be based upon a clear nexus with government involvement. Thomas then goes on to describe a range of cases where, although the arrangements at issue might be prescribed by the government, the absence of government money would be fatal to holding that there was a justiciable FCA claim. In other words, the kind of government payments into the fund that we see in the instant case are the likely minimum that the Court would countenance.
Perhaps a bigger storm warning is the additional concurrence of Justice Kavanaugh, joined by Justice Thomas, in noting that today’s opinion is a narrow one. However, the FCA’s qui tam provisions raise substantial questions under Article II of the Constitution. The Court has never ruled squarely as to Article II, though it has upheld qui tam cases as assignments to private parties of claims owned by the government, something like commercial relationships. Two Justices augured that potential unresolved constitutional challenges to the FCA’s qui tam regime necessarily will mean that any competent counsel will raise the point in any future FCA case not brought by the government alone. But note that Justice Alito did not join Kavanaugh’s opinion, though he did in the Thomas concurrence. Nor did any other conservative Justice. It still takes four to grant cert. But the future is a bit hazier, thanks to Justice Kavanaugh.
Justice Kavanaugh finds himself on the opposite side of Justice Thomas in the case of Williams v. Reed. Writing for himself, the Chief Justice, and Justices Sotomayor, Kagan, and Jackson, Justice Kavanaugh ruled in favor of a group of unemployed workers who contended that the Alabama Department of Labor unlawfully delayed processing their state unemployment benefits claims. They had sued in state court under 42 U. S. C. §1983, raising due process and federal statutory arguments, attempting to get their claims processed more quickly. The Alabama Secretary of Labor argued that these claims should be dismissed for lack of jurisdiction because the claimants had not satisfied the state exhaustion of remedies requirements.
Holding against the Secretary, the Court’s majority opined that where a state court’s application of a state exhaustion requirement effectively immunizes state officials from §1983 claims challenging delays in the administrative process, state courts may not deny those §1983 claims on failure-to-exhaust grounds. Citing several analogous precedents, the majority decided what I submit looks like a garden-variety supremacy case. After all, as Kavanaugh notes, the “Court has long held that ‘a state law that immunizes government conduct otherwise subject to suit under §1983 is preempted, even where the federal civil rights litigation takes place in state court.’” See Felder v. Casey, 487 U. S. 131 (1988).
Justice Thomas and his conservative allies didn’t see it that way at all. Quoting himself in dissent in another case, Justice Thomas asserts that “[o]ur federal system gives States ‘plenary authority to decide whether their local courts will have subject-matter jurisdiction over federal causes of action.’ Haywood v. Drown, 556 U. S. 729, 743 (2009) (THOMAS, J., dissenting).” Well, he didn’t persuade a majority then, and he didn’t do so now in this §1983 case.
Finally, in Republic of Hungary v. Simon, a unanimous Court, per Justice Sotomayor, considered the provision of the Foreign Sovereign Immunities Act of 1976 (FSIA) that provides foreign states with presumptive immunity from suit in the United States. 28 U. S. C. §1604. That provision has an expropriation exception that permits claims when “rights in property taken in violation of international law are in issue” and either the property itself or any property “exchanged for” the expropriated property has a commercial nexus to the United States. 28 U. S. C. §1605(a)(3).
The Simon case involved a suit by Jewish survivors of the Hungarian Holocaust and their heirs against Hungary and its national railway, MÁV-csoport, in federal court, seeking damages for property allegedly seized during World War II. They alleged that the expropriated property was liquidated and the proceeds commingled with other government funds that were used in connection with commercial activities in the United States. The lower courts determined that the “commingling theory” satisfied the commercial nexus requirement in §1605(a)(3) and that requiring the plaintiffs to trace the particular funds from the sale of their specific expropriated property to the United States would make the exception a “nullity.”
The Supreme Court didn’t quite agree, holding that alleging the commingling of funds alone cannot satisfy the commercial nexus requirement of the FSIA’s expropriation exception. “Instead, the exception requires plaintiffs to trace either the specific expropriated property itself or ‘any property exchanged for such property’ to the United States (or to the possession of a foreign state instrumentally engaged in United States commercial activity).”
The three cases decided today bring the total decisions of the term to eight. Stay tuned because a torrent might be on the horizon.
Corporate Transparency Act Enforceable Again
On February 18, 2025, the U.S. District Court for the Eastern District of Texas in Smith, et al. v. U.S. Department of the Treasury, et al., 6:24-cv-00336 (E.D. Tex.), stayed the nationwide injunction on enforcement of the Corporate Transparency Act, thereby requiring all reporting companies to file beneficial ownership information (“BOI”) with FinCEN.
Accordingly, the new deadline to file an initial, updated, or corrected BOI report is now March 21, 2025. However, reporting companies that were previously given a reporting deadline later than the March 21, 2025, deadline must file their initial BOI report by that later deadline. For instance, this exception applies if your reporting company qualifies for certain disaster relief extensions.
In addition, on February 10, 2025, the U.S. House of Representatives passed the Protect Small Businesses from Excess Paperwork Act of 2025 (“H.R. 736”), which would extend the Corporate Transparency Act’s original filing deadline of January 1, 2025, to January 1, 2026. Importantly, the U.S. Senate has not passed H.R. 736. If passed by the U.S. Senate and signed by the President, the new filing deadline will be January 1, 2026.
Given the shifting regulatory landscape, businesses should stay informed and ensure compliance to avoid potential penalties. For a detailed breakdown of the reporting requirements under the Corporate Transparency Act, visit this article.
CTA Reporting Restored: FinCEN Extends Filing Deadlines and Signals Revisions to Reporting Requirements After Federal Court Lifts Stay
On February 18, 2025, the U.S. District Court for the Eastern District of Texas in Smith, et al. v. U.S. Department of the Treasury, et al., 6:24-cv-00336 (E.D. Tex), lifted its order staying the Financial Crimes Enforcement Network (FinCEN) regulations establishing the Beneficial Ownership Information (BOI) reporting requirements under the Corporate Transparency Act (CTA).
Immediately following this action, FinCEN announced an extension of the deadline for companies to file BOI reports by 30 calendar days. Thus, the new deadline for companies to file an initial, updated, and/or corrected BOI report is Friday, March 21, 2025. The March 21 filing deadline applies to:
existing companies that were originally required to file before January 1, 2025;
companies that were formed in 2024 and originally required to file within 60 days of the formation date; and
companies that were formed on or after January 1, 2025, and before February 20, 2025.
Additionally, the U.S. Department of the Treasury has committed, during this 30-day period, to assess its options to further modify deadlines, prioritize reporting for those entities that pose the most significant national security risks, and initiate a process during this year to revise BOI reporting requirements to reduce the burden for lower-risk entities, such as many U.S. small businesses.
The exceptions to the March 21 reporting deadline include the following:
Those companies that were previously given a reporting deadline later than March 21, 2025—e.g., companies having a later reporting deadline because they qualified for certain disaster relief extensions that were previously granted by FinCEN—may file their BOI report based on that later deadline.
Plaintiffs in the case National Small Business United v. Yellen, 5-22-cv-01488 (N.D. Ala.), are not currently required to report BOI information to FinCEN.
FinCEN announced this change in filing requirements through a notice posted on the BOI Beneficial Ownership Information web page titled “Corporate Transparency Act Reporting Requirements Back in Effect with Extended Reporting Deadline; FinCEN Announces Intention to Revise Reporting Rule.