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Apr-18-2008Inquiries Into Auction-Rate Securities Widen(topic overview)
CONTENTS:
- CHICAGO (Reuters) - New York's attorney general and securities regulators in several U.S. states are probing auction-rate securities and the role Wall Street firms had in enticing investors into the troubled $330 billion market. (More...)
- Attorney General Cuomo says incidents of significant fraud have turned up at Medicaid's expense. (More...)
- Adrian Clements, a home nurse, pleaded guilty to billing Medicaid for nursing care for 10 people. (More...)
- Regulators from nine other states have also formed a task force to investigate. (More...)
- Throughout the state, "Operation Home Alone" has resulted in charges against more than 80 defendants, including patients, aides, nurses, instructors, and the administrators of licensed and certified home health agencies. (More...)
- More than 150,000 New Yorkers receive Medicaid-funded home health services monthly. (More...)
- "I'm a firm believer that you can improve quality and cut costs at the same time," said County Executive Maggie Brooks. (More...)
- Cuomo is investigating banks that underwrote and brokered the investments to determine how the risk of auction failure was disclosed to investors. (More...)
- In total the state pays more than $15.3 billion a year for Medicaid, which pays health insurance for the poor and disabled. (More...)
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CHICAGO (Reuters) - New York's attorney general and securities regulators in several U.S. states are probing auction-rate securities and the role Wall Street firms had in enticing investors into the troubled $330 billion market. New York Attorney General Andrew Cuomo's office launched a sweeping investigation this week, sending subpoenas to 18 broker-dealers and banks, people familiar with the probe told Reuters on Thursday. [1] April 17 (Bloomberg) -- New York Attorney General Andrew Cuomo's office issued subpoenas to 18 banks and securities firms as part of a criminal probe into the marketing of auction-rate bonds to investors and issuers, a person familiar with the investigation said.[2]
WASHINGTON - New York Attorney General Andrew Cuomo has subpoenaed Wall Street banks and broker-dealers for information about their auction-rate securities transactions and sales, sources said yesterday. Cuomo, who is seeking information dating back as far back as 2003, wants to know the extent to which firms stepped in to prevent auctions from failing and whether they misled investors by marketing their ARS as cash-like investments, the sources said. The list of firms that received subpoenas includes Merrill Lynch & Co., JPMorgan, UBS Securities LLC, and others, they said. Spokesmen for these and other firms declined to comment.[3] NEW YORK (CNNMoney.com) -- New York Attorney General Andrew Cuomo is investigating 18 Wall Street investment banks regarding the collapsed auction rate securities market, according to an article from the Wall Street Journal. The report says that the New York Attorney General has issued subpoenas early this week that included large-sized financials such as UBS, Merrill Lynch, and Goldman Sachs, with even more subpoenas coming soon.[4] Wall Street might want to quiet its chortling over former New York Attorney General Eliot Spitzer's recent turn of events. His prosecutorial legacy appears to be alive and well in the form of Andrew Cuomo. Current New York Attorney General Cuomo has sent subpoenas to 18 banks to find out more about how they sold auction-rate securities, according to reports in the Wall Street Journal and the New York Times.[5]
NEW YORK, April 17 (Reuters) - New York Attorney General Andrew Cuomo this week launched a sweeping investigation of the $330 billion auction rate securities market, sending subpoenas to 18 banks and brokerages, people familiar with the investigation said on Thursday.[6] New York Attorney General Andrew Cuomo has launched a broad investigation into the auction rate securities market, a $330bn (£165bn) market that virtually collapsed in February when many banks chose to support the auctions with their own bids. Mr Cuomo's office subpoenaed 18 banks and financial institutions, including Goldman Sachs and UBS, earlier this week, in his bid to understand not only whether mis-selling occurred in the complex market, but also what local councils and schools were told about auction rates as a method of cheaper financing. The majority of investors in the asset-backed market have had their fingers burnt, after buying what they believed to be liquid securities only to find out they are now holding near-worthless instruments.[7]
The state Attorney General's Office has subpoenaed five Rochester area health care providers in an expansion of an investigation into New York's home health care industry. Investigators from his office will look for patterns of fraud or abuse of Medicaid, which pays $56 million a year for home health care in Monroe County, Cuomo said. Fraud involving home health care providers can have two victims, he said. 'It's a double fraud,' Cuomo said. 'It victimizes the elderly person.[8] Heidi Wendel, special deputy attorney general for Medicaid fraud, said the subpoenas weren't issued because of a suspicion of guilt but to audit the agencies' performance. 'We'll look for certain problems that we've identified downstate,' she said. The Monroe County part of the investigation could take up to six months, she said. Since its investigation began downstate, the Attorney General's Office has brought charges against more than 80 defendants and gained 50 convictions, Cuomo said. Those convicted have been ordered to repay nearly $14 million. The investigation has uncovered home health aides who possessed fake certificates qualifying them to work in the homes of patients, as well as schools that sold the certificates to aides who didn't qualify to receive them and aides who submitted bills for work they didn't perform. At the press conference, County Executive Maggie Brooks and Mayor Robert Duffy said they support the investigation.[8] BUFFALO, N.Y. - Twenty-seven upstate home health care agencies face questions from the state about aides who provide services paid for by Medicaid. Attorney General Andrew Cuomo said a round of subpoenas sent by his office this week are part of a widening Medicaid probe that began with reports of fraud downstate last year.[9] Heidi Wendle, special deputy attorney general for Medicaid fraud, said the subpoenas weren't issued because of suspicion of guilt, but in order to audit the agencies' performance. "We'll look for certain problems that we've identified downstate," she said. Joanne Cunningham, president of the state Home Care Association, said the agency supports Cuomo's efforts, but shouldn't "impair the vast majority of agencies that are diligent and committed to providing quality home care to those most in need." The upstate home-health care industry is the latest target by Cuomo, who earlier this week expanded his probe into whether local governments and schools are bilking taxpayers by putting consultants on the payroll in order to receive state benefits, such as health care and pensions. As part of his own similar probe, state Comptroller Thomas DiNapoli on Thursday revoked pension benefits from four Albany attorneys at the Hamilton-Fulton-Montgomery BOCES because DiNapoli said they were inappropriately receiving retirement benefits from the state pension.[10] Cuomo said the home-health care industry bills the state $3.8 billion a year in Medicaid costs, yet Cuomo believes there is "rampant fraud throughout the system." He mentioned instances where home-health agencies bill patients but never even show up. He said there's one case in Rochester where there was $70,000 in over billing. "It's a double fraud," Cuomo said. "It's victimizing elderly people, disabled people who are home bound for the most part, and you rip off the taxpayers." He said the subpoenas will seek records and information from home-health care companies about their billing practices and work with patients. The home-health care industry is the latest target by Cuomo, who earlier this week expanded his probe into whether local governments and schools are bilking taxpayers by putting consultants on the payroll in order to receive state benefits, such as health care and pensions.[11]
A statewide probe into fraud in the home health care industry has resulted in the arrest of a woman who works for a Buffalo service provider. "The trick is to find the bad actors in the industry and to root them out," State Attorney General Andrew M. Cuomo told reporters in Buffalo today as he outlined "Operation Home Alone," a statewide investigation that has already resulted in charges being lodged against more than 80 people. Nurses, aides, instructors and patients are among those charged.[12] Attorney General Andrew Cuomo was in Syracuse, Rochester and Buffalo Thursday announcing arrests and subpoenas into an ongoing statewide fraud investigation of the home health care industry.[13]
ROCHESTER, NY (2008-04-17) State Attorney General Andrew Cuomo says subpoenas have been issued to five Rochester-area home health care companies as a Medicaid Fraud probe expands statewide.[14] ALBANY -- Attorney General Andrew Cuomo on Thursday widened his probe of fraud in the state's Medicaid system, issuing subpoenas to 27 home-health-care providers in the Rochester, Binghamton and Buffalo areas.[10]
Attorney General Cuomo says several violations showed up in downstate probes. He says some schools were caught selling diplomas to home care nursing students who didn't take classes. He says they've found nurses who abused their patients, who failed to show up or who double and triple billed Medicaid for their services. One of those nurses was 39-year old Adrian Clements of Rochester. She pleaded guilty to grand larceny charges for overbilling 70-thousand-785 dollars -- falsely claiming to have provided services to ten Medicaid recipients including five children that she never served. Attorney General Cuomo says this type of fraud is a double victim crime It hits both the Medicaid patients who aren't getting served and the taxpayers who fund Medicaid.[14] The agencies in the Rochester area include Gentiva Health Services, Finger Lakes Visiting Nurse Service, HCR, Lifetime Care and Visiting Nurse Service of Rochester & Monroe County. Just because these organizations have been subpoenaed doesn't mean they've done something wrong, Cuomo said. "We've subpoenaed all the. home healthcare agencies in the county," he said. The attorney general's office will then check their records to look for patterns of Medicaid fraud.[15]
The New York Attorney General's Office is requesting a look at Medicaid spending records. Having a nurse come to her home is a better alternative for Carol Ortis than living in a nursing home. Because Medicaid pays the bill, it's better for taxpayers too. Monroe County Executive Maggie Brooks said, "It is much more cost effective than nursing home care. To''' provide that, you have to make sure that it's a system with great integrity.[16]
New York state Attorney General Andrew Cuomo has brought his fight on the home healthcare industry to the Rochester area.[15] Cuomo says even a little fraud in a system that big adds up fast. The Attorney General says he'll recommend legislation that would provide tighter state oversight of the home health care industry. He says he'll also propose a system people can use to check out who they're letting into their homes and what their qualifications are.[14]
The investigation has so far led to charges against more than 80 patients, aides, nurses, instructors and administrators of home health agencies, 50 convictions and judgments to pay more than $14 million in restitution, the attorney general said.[9] Melody McKnight pleaded guilty to forgery and bribery charges. In a Rochester case, nurse Adrian Clements admitted filing reimbursement claims for services that she did not provide, receiving $70,785 from the Medicaid program. She was sentenced to five years probation and ordered to repay the money. Other recent cases have exposed aides working without proper training, no-show aides who split their payments with complicit patients and aides billing multiple agencies for 36 hours in a single day. Of the subpoenas issued this week, 15 went to Syracuse-area agencies, while agencies in Buffalo and Rochester received seven and five, respectively. Cuomo said the targeted companies are not accused of wrongdoing, but that investigation has warranted giving them a closer look.[9] The subpoenas are part of Cuomo's "Operation Home Alone" that has led to charges against 80 home-health workers and more than 50 convictions, mainly from the New York City area. Cuomo said that since the investigation started last year, his office has discovered "rampant fraud throughout the system" and in now focusing on upstate agencies.[10] Clements was sentenced to five years' probation, four months of weekend incarceration and had to pay back the money. The investigation has also uncovered home-health aides who possessed fake certificates qualifying them to work in the homes of patients, as well as schools that sold the certificates to aides who didn't qualify to receive them. "It's a double fraud," Cuomo said in an interview with Gannett News Service. "It's victimizing elderly people, disabled people who are home bound for the most part, and you rip off the taxpayers."[10]
"We want to clean up the fraud." The investigation targets not only the aides who provide the services, but the agencies that hire, train and contract them out. The president of the Home Care Association of New York supported the effort to prosecute those who undermine the system but cautioned against allowing a "broad-brush approach" to impair those trying to deliver quality care.[9] "Older New Yorkers overwhelmingly prefer to receive long-term care services for themselves or a family member through home care and community-based services rather than institutional care," said Lois Aronstein, the director of AARP in New York.[9]
The Home Care Association of New York State responded by saying it supports efforts to find and prosecute criminals who undermine the integrity of the health care system.[14] "Operation Home Alone" has been looking for corruption in the home health care industry in New York.[14]
The subpoenas were issued under terms of New York State's Martin Act, which gives New York investigators broad powers, along with the ability to bring criminal charges. The regulators are focusing on whether the risks of the measures was adequately disclosed after many investors found they could no longer get out of the securities because hundreds of auctions failed when big banks stopped bidding in them as the effects global credit crunch gripped the marketplace.[17] FINRA's inquiry is focused on sales practices and marketing, sources said. Both agencies have sent banks and broker-dealers for questionnaires and other requests for information about the securities. All of the probes stem from hundreds of complaints that state, federal, and FINRA officials have received from investors who have been unable to sell their ARS holdings. Historically these securities, which typically were insured, were marketed as very liquid, cash-like investments that had higher yields than money market funds or certificates of deposits. When the insurers with exposure to the subprime mortgage market experienced rating downgrades because of the turmoil in that market, that lowered the value of the securities they insured. Investors lost interest in ARS and the auctions held to periodically reset the rates began to fail when they did not attract enough buyers. In the past, banks and broker-dealers put in bids of their own on these securities to prevent auctions from failing. In June 2006, 15 firms agreed to pay $13 million to settle charges that they violated the securities laws by not disclosing these and other auction-rate securities practices. Some firms began disclosing their practice of putting in bids to prevent failed auctions. The credit crunch led banks and dealers to tighten their lending standards and put a stop to this practice.[3] Late last month Massachusetts Secretary of State William Galvin subpoenaed Merrill, UBS, and Bank of America Investment Services Inc. for information on ARS transactions and sales. Galvin told reporters that his office had received calls from many investors who thought they were investing in safe, liquid investments only to find that they were stuck holding these securities. In addition to the state investigations, the Securities and Exchange Commission's enforcement division and the Financial Industry Regulatory Authority are also probing whether broker-dealers misrepresented the liquidity risks of auction-rate securities when they sold them to investors. The SEC is looking at other issues as well, such as whether broker-dealers favored certain customers by ensuring they would be able to sell their auction-rate securities, when others could not.[3] Cuomo's office is looking into every part of the auction-rate securities business, the sources said. The securities were long touted as cash-like investments until the credit crunch led to a breakdown in these markets. Cuomo's subpoenas seek information about what towns, public agencies and other issuers were told about the securities they sold as financing. The state will look to see whether investors were told they were buying safe, highly liquid securities that they now cannot sell.[6]
John Milgram, a spokesman for Cuomo's office, declined to comment. Securities regulators in nine other states led by Massachusetts separately today said they formed a task force as they investigate the auction market. "We're all getting complaints on a daily basis from retail investors and they all have the same the story: they were told by their brokers these were safe as cash and they're not,'' said Bryan Lantagne, the securities division director for Massachusetts Secretary of State William Galvin and head of the task force. Regulatory scrutiny of Wall Street has been growing since the $330 billion auction-rate market collapsed in February, leaving some issuers paying higher penalty rates and investors unable to sell their securities.[2] Attorney General Andrew Cuomo began the industrywide investigation into how Wall Street banks sold the securities after distress in the $330 billion (207.91 billion) auction rate securities market caused more than 50 student lenders to stop making federally guaranteed student loans, according to the official, who spoke on condition of anonymity because the investigation was ongoing.[18] Attorney General Andrew Cuomo launches probe into 18 Wall Street banks, according to report in the Wall Street Journal.[4]
Attorney General Cuomo says incidents of significant fraud have turned up at Medicaid's expense. [14] New Yorkers are urged to report cases of suspected fraud to the Attorney General's toll-free Medicaid Fraud Hotline, at 1-866-NYS-FIGHT (697-3444).[13] People are encouraged to call the attorney general's toll-free Medicaid Fraud Hotline at 1-866-NYS-FIGHT. [email protected][12]
Adrian Clements, a home nurse, pleaded guilty to billing Medicaid for nursing care for 10 people. She never provided the care and It cost taxpayers $70,000. Cuomo said, "These are elderly, disabled and fundamentally home bound. The nurse who's supposed to be helping them, victimizes them. The second fraud is--they're defrauding the taxpayer." [16] Last year, home-health care for Medicaid patients cost $56 million in Monroe County, $33 million in Erie County and $17 million in Onondaga County, Cuomo said.[10] Last year in Monroe County, Medicaid paid about $56 million into the home healthcare system, Cuomo said.[15]
Cuomo's office has investigated 80 home healthcare agencies across the state, which has resulted in 50 convictions, Cuomo said. Those defendants were ordered to repay about $14 million.[15]
Spokespersons and lawyers from Cuomo's office did not return calls by press time. Cuomo is at least the second state securities regulator to launch an investigation of these firms over auction rate securities.[3] An investigation of auction rate securities is also underway by the Securities and Exchange Commission and the Financial Industry Regulatory Authority, which oversees Wall Street.[17] The Securities and Exchange Commission last week said it is working with the Financial Industry Regulatory Authority, which oversees brokerages, to examine firms' disclosures to clients who purchased the bonds.[2]
Regulators from nine other states have also formed a task force to investigate. Auction rate securities are long-term bonds that were often sold as short-term investments because investors had the option of selling them at periodic auctions held weekly or monthly. [17] Auction rate securities are assets borrowed for a long period of time at short-term interest rates, which are typically lower than long-term rates. Auction rate securities' interest rates are reset frequently in bidding, and their investors try to make more from the cash it raises by selling the securities than the money it loses by paying the dividend.[4] The interest rates on the securities are reset at regular auctions, but at the end of January many auctions failed when big banks stopped bidding on the securities. That stuck investors with long-term securities at higher rates that they could not sell.[18]
The problem came as a shock to some investors, who were often told that the auction rate securities were as safe as cash.[18]
The Massachusetts Secretary of State's office said on March 28 that it subpoenaed information from UBS AG, Merrill Lynch & Co. and Bank of America Corp. regarding the sale of the securities to investors in the state.[2] Officials from the 18 banks could not be reached immediately for comment. Securities regulators in nine other states have launched their own probes and formed a task force to coordinate efforts, the North American Securities Administrators Association said on Thursday. Regulators in Florida, Georgia, Illinois, Massachusetts, Missouri, New Hampshire, New Jersey, Texas and Washington are conducting their individual state investigations and make up the task force so far, according to the group.[1] Cuomo's investigation follows similar probes by the North American Securities Administrators Association, led by members from Massachusetts, Florida, Georgia, Illinois, Missouri, New Hampshire, New Jersey, Texas and Washington.[4]
In addition to Massachusetts, the nine-member task force includes regulators in Florida, Georgia, Illinois, Missouri, New Hampshire, New Jersey, Texas and Washington, according to a news release from the North American Securities Administrators Association. Other states are prepared to participate in the task force, Lantagne said.[2]
Throughout the state, "Operation Home Alone" has resulted in charges against more than 80 defendants, including patients, aides, nurses, instructors, and the administrators of licensed and certified home health agencies. [13] Records of all five certified home health care agencies in Monroe County have been subpoenaed, even though there is no direct evidence of wrongdoing. Fraud investigator Heidi Wendel said, "It'''s in the nature of an audit to examine closely their relationships with other agencies that hire aids-- and to look for certain patterns we have developed downstate.'''[16] Medicaid pays more than 56-million dollars a year for home health care in Monroe County alone -- and three-point-eight billion dollars statewide.[14]
Cuomo and other speakers underscored the importance of offering home health care services at a time when the aging population continues to grow.[12] Cuomo is also pushing for a statewide registry of certified home health aides as a way to better oversee the industry.[9] Cuomo said ineffective regulations, coupled with the difficulty of policing an industry that provides services in 150,000 homes statewide have caused widespread fraud. Inappropriate training, falsified certificates and overbilling are just a few problems, he said.[12] "Providers of quality home care services have an equal, if not greater, stake in curbing fraud and abuse," HCA President Joanne Cunningham said, "because the misdeeds of a few rogue individuals have the potential to tarnish the entire home care community."[9] HCA President Joanne Cunningham says Cuomo has issued subpoenas to companies that aren't specifically suspected of wrongdoing. She says such a broad-brush approach could impair the "vast majority" of agencies that are committed to providing quality home care.[14] Cuomo said that the subpoenas will seek information as to whether the health agencies were bilking taxpayers and providing poor care to patients.[10]
Seven local agencies have been slapped with subpoenas in the undercover probe, but Cuomo stressed that the subpoenas don't necessarily mean the providers committed wrongdoing.[12] Cuomo began the probe in the downstate region. He said some home healthcare agencies are fraudulently charging Medicaid for services never rendered.[15]
The probe will continue to ferret out abuse in an industry that received $3.8 billion in state Medicaid payments last year.[12] Cuomo said home-health care represents about $3.8 billion a year in state Medicaid costs.[10] McKnight sold an undercover investigator two falsified personal care aide certificates and a falsified medical exam report required at Willcare, Cuomo said. State officials claim she also offered to have sex with an undercover investigator.[12]
Cuomo pointed to the arrest of an employment recruiter for an in-home health care training company in Buffalo for selling falsified personal care aide certificates.[9]
"We had nurses who never showed up, we had nurses who showed up and abused the patient. We have cases of nurses who overbill to the tune of hundreds of thousands of dollars," Cuomo said during a news conference in his Buffalo office.[9] Adrian Clements, 39, of Rochester, was convicted of fourth-degree grand larceny, according to Cuomo. Clements admitted to submitting reimbursement claims for services she never provided or were provided by another nurse, which added up to $70,785 in one year, according to a press release issued by Cuomo's office. Clements was sentenced to five years of probation, four months of weekend jail time and she must make restitution.[15]
Heidi Wendel of the Attorney Generals Rochester office says there are no specific allegations against either firm. She says this amounts to an audit in which state lawyers will check for signs that experience has shown could mean abuse of the system.[14] The Democratic attorney general said there have been cases in which home-health agencies bill the state, but never provide the services.[10]
More than 150,000 New Yorkers receive Medicaid-funded home health services monthly. The bill to taxpayers in 2007 was $3.8 billion, he said. [9] Home health care uses visiting nurses to help care for the frail elderly at home.[14]
"I'm a firm believer that you can improve quality and cut costs at the same time," said County Executive Maggie Brooks. Home healthcare is much more cost effective than nursing home services, she said, if it's done appropriately. [15] The New York Times quotes knowledgeable sources as saying the subpoenaed banks were involved in underwriting and brokering the investments in question.[17] The subpoenas were issued under the Martin Act, which gives New York investigators broad powers.[2] Cuomo could press criminal charges under New Yorks Martin Act, which provides criminal and civil enforcement powers for publicly traded companies.[18]
Cuomo is investigating banks that underwrote and brokered the investments to determine how the risk of auction failure was disclosed to investors. [18] Wall Street banks running the auctions stopped stepping in to buy the bonds in February when there weren't enough bidders, permitting thousands of failures that triggered rates as high as 22 percent.[2] Here is how it works: States, student loan agencies and others sell auction rate debt. They are long-term bonds frequently sold as short term investments.[18] Auction-rate securities are long-term bonds that behave like short-term debt, with interest rates that reset frequently. They have long been popular with conservative investors because some securities are tax-exempt.[6]
The banks are already facing a plethora of investigations and class-action lawsuits related to many of the toxic securities that have led to funds collapsing and the fire sale of Bear Stearns.[5]
Cuomo is also asking for information about how bankers persuaded borrowers to issue the bonds and how the banks came to decide when to stop bidding in mid-February, the person familiar with the probe said.[2]
In total the state pays more than $15.3 billion a year for Medicaid, which pays health insurance for the poor and disabled. [10] '''Operation Home Alone", first targeted fraud downstate, t netted 80 arrests and the recovery of nearly $14 million dollars.[16]
SOURCES
1. State officials probing auction-rate market | Reuters
2. Bloomberg.com: Worldwide
3. Cuomo Opens ARS Probe - 04.17.2008 - Bond Buyer Article
4. N.Y. Attorney General probes auction securities: report - Apr. 17, 2008
5. Cuomo Probes Auction Rate Securities - Portfolio.com
6. UPDATE 1-New York AG probes auction rate markets-sources | Markets | Bonds News | Reuters
7. cnrates118.xml
8. AG expands probe of home health care to Rochester | democratandchronicle.com | Democrat and Chronicle
9. Crackdown on NY home care providers moves upstate -- Newsday.com
10. Cuomo seeks information from three Broome health agencies
11. Cuomo Issuing Subpoenas On Home Health Industry | Politics on the Hudson
12. The Buffalo News: Latest Local News: Cuomo notes first local arrest in statewide home health care probe
13. Home health-care probe goes Upstate - Business First of Buffalo:
14. wxxi NewsRoom
15. State Attorney General Andrew Cuomo brings healthcare probe to area - Rochester, NY - MPNnow
16. NYS Attorney General Subpoenas 5 Health Agencies--Could Mean Trouble - 13WHAM.com
17. NY Attorney General Subpoenas Banks In Securities Probe [] - RTTNews, Today's Top Stories, Global Newswires, ToDay's Top News,Global Business news .
18. New York attorney general subpoenas 18 banks in market probe - International Herald Tribune
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