The former chairman and chief executive of MDwerks Inc. (OTCBB: MDWK.OB), a company featured in a recent Sharesleuth investigation, has pleaded guilty to one count of health care fraud in connection with the processing of falsified insurance receivables.
Recently unsealed court documents show that the executive, Howard B. Katz, has been cooperating with authorities in a broader investigation into the receivables transactions.
That cooperation began in December 2008, shortly after he was charged. In court filings, federal prosecutors described Katz’s assistance as “significant, useful, timely and reliable.”
Kurtz was sentenced to three years of probation. He was ordered to spend weekends in prison for 24 consecutive weeks, and also must pay a $25,000 fine.
A federal grand jury in New Hampshire has been hearing evidence in the fraud case, which revolves around falsified receivables for benefits covered by workers’ compensation plans. The investigation involves two public companies – MDwerks, of Deerfield Beach, Fla., and Medical Solutions Management Inc. (Pink Sheets: MSMT.PK), of Marlborough, Mass.
Vicis Capital LLC, a New York-based hedge fund operator, was the biggest source of capital for both companies, providing more than $30 million in debt and equity financing.
Sharesleuth previously reported that federal authorities have been scrutinizing what role, if any, certain Vicis employees played in the insurance scheme.
Vicis has contended that the company and its employees were not, and are not, being investigated. It declined, through its attorney, to comment on Katz’s case, saying that the matter does not involve the hedge fund.
Katz’s charging documents say that MDwerks got $6.8 million in March 2008 from an unidentified hedge fund, which Sharesleuth determined was Vicis. It used the money to buy insurance claims from a factoring company in California.
MDwerks also handled other receivables that Medial Solutions Management had purchased from that California company, Deutsche Medical Inc.
According to the court documents, MDwerks hired a billing agency in New Hampshire to help process the claims. In the summer of 2008, the billing agency discovered problems with the documentation. Among other things, it found that some of the receivables listed incorrect dates of service, and that others covered services that had never been provided. Some of the receivables even covered charges for skin creams that were purportedly dispensed to a person who was dead.
The documents say Katz knew, by September 15, 2008, that the receivables were largely fraudulent, but that he still caused MDWerks to seek payment from insurers and other benefit providers. They say he also devised fraudulent methods to allow MDWerks to continue collecting on the claims, and that he paid the billing agency nearly $147,000 to cover the expenses related to the alteration of the receivables.
Katz was charged under a sealed information, similar to an indictment, on Dec. 10, 2008. He signed a plea agreement four days later. He remained MDWerks’ chairman and chief executive, however, until February 2009.
Two Vicis employees, founding partner Shad L. Stastney and managing director Christopher D. Phillips, were on MDWerks’ board of directors. Stastney resigned from MDWerks’ board in September 2009; Phillips quit two months later.
Stastney also had been a member of Medical Solutions Management’s board.
Vicis, which has seen a sharp drop in its assets under management, announced earlier this year that it was winding down its funds.