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CIK 0000878146 · Genesis / Medicare

Genesis Health Management — The $49.3M Medicare Engine

Before the share-trafficking began, the enterprise billed Medicare. On 2 Dec 1996 Dynamic Associates (CIK 0000878146) bought Genesis Health Management for $25.4M — $24.3M of it goodwill — running up to 26 geropsychiatric hospital contracts across four states with 100% of revenue Medicare-derived. Between 1994 and 2001 it generated ~$49.3M in Medicare management fees while a convicted Medicaid felon (David Hunter) and an OIG-excluded doctor (Robert Spertell) sat inside the controlled group, a Genesis-employee qui tam was disclosed once and then suppressed, and $3.28M of Medicare money was routed to offshore Reg S noteholders.

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How it worked

Genesis was a real federal-payer billing operation bolted onto a blank-check shell. 100% of Dynamic's operating revenue came from Medicare through the geropsychiatric PPS exemption, so the $24.3M of goodwill — and every officer salary and offshore note-interest payment — was funded by government reimbursement. Two barred individuals inside the commonly-controlled group (Hunter, convicted of 19 Medicaid-fraud counts; Spertell, OIG-excluded since 1991) render every claim during their participation per se false under 42 U.S.C. §1320a-7(a) and 42 C.F.R. §413.17 — the Spertell window alone overlaps $35.1M, or >$105M trebled. A Q2-1999 employee qui tam put the enterprise on notice of false billing; it was disclosed in one 10-QSB and dropped from every later filing. When the Balanced Budget Act gutted the model, LATI sold the contracts to Horizon for $2.9M (Cane falsely certifying no employee was convicted or program-barred), converted $8.6M of debt to 56.58M Reg S shares, and reverse-merged Tele-Lawyer into the cleaned shell on 12 Jun 2001 — discarding the Medicare engine and keeping the reporting CIK.

Open the filed qui tam complaint at this section — the operative pleading (United States ex rel.), jumped to the matching allegation; the filed PDF is one click away.

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Forensic brief

The complete forensic brief behind this summary — the full record with exhibits. Page through it below, or open it larger for the document summary and key relations.

Forensic brief — Genesis Health Management 1 / —
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Genesis Health Management: the federal-money engine

Before the enterprise learned to traffic shells, it learned to bill Medicare. On 2 December 1996, Dynamic Associates, Inc. (CIK 0000878146) — Jan Wallace as CEO, Grace Sim as CFO, Kyleen Cane as securities counsel — bought 100% of Genesis Health Management Corporation, a Louisiana geropsychiatric-unit operator, for $25,373,000.8 Of that price, $24,262,775 was booked as goodwill — the value was almost entirely intangible, riding on the continuation of Medicare management-fee contracts. A second operator, Geriatric Care Centers of America (GCCA), was folded in on 13 March 1997.

At its peak the enterprise managed up to 26 active hospital contracts across Louisiana, Arkansas, Mississippi and Tennessee, billing Medicare directly through the geropsychiatric PPS exemption. One hundred percent of Dynamic’s operating revenue was Medicare-derived: the public company had no other business.

  1. Dynamic Assocs., Inc., Annual Report (Form 10-KSB) (filed Nov. 18, 1996) (Genesis purchase, $25,373,000; $24,262,775 to goodwill); Genesis Health Mgmt. Corp. (La., est. Jul. 23, 1994); Geriatric Care Ctrs. of Am., Inc. (Tenn., acquired Mar. 13, 1997).
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$49.3 million in Medicare management fees

Between 1994 and 2001 the Genesis/GCCA units generated approximately $49.3 million in documented Medicare management-fee revenue ($55.3M including 1995 pro forma).6 Revenue crested at $14.6M (1997) and $12.5M (1998) before the Balanced Budget Act phased out the cost-based geropsychiatric exemption — collapsing billings to $8.0M (1999) as named hospital contracts were terminated.7

This is the figure that recurs across the entire enterprise as a one-line “$49.3M Medicare” veneer on the Dynamic / LATI shell. The forensic record behind that line is a federal-payer billing operation whose every dollar came from the government — and whose proceeds were routed straight into the share-trafficking machine.1

  1. Dynamic Assocs., Inc., Annual Report (Form 10-KSB) (FY ended Dec. 31, 1999); Legal Access Techs., Inc., Annual Report (Form 10-KSB) (FY ended Apr. 30, 2002); revenue by year FY1997 $14.6M, FY1998 $12.5M, FY1999 $8.0M (Spertell taint window FY1997–FY1999 = $35.1M).
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A convicted Medicaid felon and an OIG-excluded doctor — inside the controlled group

Two of the people the enterprise placed at the center of its Medicare operation were barred from federal health programs. David Hunter co-acquired control of Dynamic Associates with Wallace on 30 August 1995; twenty-one days later he was indicted on nineteen counts of Medicaid fraud (United States v. Hunter, No. 5:95-cr-00020 (S.D. Miss.)), pleaded guilty 22 Jan 1996, and was OIG-excluded on 29 October 1996.8 Dynamic’s filings never disclosed his indictment, his conviction, or the real reason for his resignation.

Dr. Robert B. Spertell, M.D. — OIG-excluded since 9 October 1991 — was simultaneously employed as Chief Scientist / COO of the Microwave Medical subsidiary of the commonly-controlled MW Medical, Inc. from April 1996 through August 1999, at $110,000/yr, his exclusion omitted from every SEC bio.14

Under 42 U.S.C. § 1320a-7(a) and 42 C.F.R. § 413.17, an excluded person inside a commonly-controlled group renders every claim submitted during their participation per se false. Spertell’s window alone overlaps $35.1M in Medicare revenue; at FCA treble damages, exposure on that period exceeds $105M before penalties.1

Cached HHS-OIG LEIE record — David Hunter (the sole “Hunter, David” in OIG’s current published database): exclusion type 1128a1 (42 U.S.C. § 1320a-7(a)(1) — mandatory exclusion on a program-related conviction), excluded 29 October 1996, no reinstatement on record; address of record P.O. Box 9500, #04178-043, Texarkana, TX 75501 — the Federal Correctional Institution, Texarkana (Bureau of Prisons register no. 04178-043), corroborating the conviction. OIG’s LEIE offers no shareable per-name link, so this record is cached from OIG’s own published database. Verify at the HHS-OIG LEIE online search → (search “Hunter, David”).

  1. HHS OIG List of Excluded Individuals/Entities (LEIE): David Hunter, 42 U.S.C. § 1320a-7(a)(1), excluded Oct. 29, 1996; Robert B. Spertell, M.D., 42 U.S.C. § 1320a-7(b)(4), excluded Oct. 9, 1991, UPIN A47027. Of ten enterprise-associated individuals checked, these two are confirmed exclusions.
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The qui tam disclosed once — then suppressed

The enterprise was told, in its own employees’ words, that it was billing falsely. A Q2 1999 quarterly report disclosed that Genesis employees had brought a False Claims Act qui tam (31 U.S.C. § 3730) alleging “improper claims submitted to the government for reimbursement.”9

The Company and its subsidiaries were recently named defendants in a qui tam provision under the False Claims Act… for improper claims submitted to the government for reimbursement.Dynamic Assocs., Inc., Quarterly Report (Form 10-QSB) (Aug. 23, 1999)

That disclosure appeared in exactly one filing. It was dropped from the FY1999 10-KSB, from every 2000–2001 filing, and from every post-merger LATI filing — even as the enterprise kept billing Medicare. The disclose-once-then-bury pattern is the scienter: contemporaneous notice of false-billing allegations, concealed from investors while the claims continued.1

  1. Dynamic Assocs., Inc., Quarterly Report (Form 10-QSB) (filed Aug. 23, 1999) (qui tam by former Genesis employees; government declined to intervene); absent from all subsequent SEC filings.
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Medicare funds out the back door — to offshore noteholders

The government money did not stay in the hospitals. Dynamic raised $14.5M–$18.5M through Regulation S convertible notes sold to non-U.S. persons (919 notes at $18,500 each, 10% interest), and paid the interest out of its only revenue source — Medicare management fees. Roughly $3.28M in Medicare-derived interest flowed to offshore noteholders, on top of ~$6.98M in officer and related-party extractions.1

The Reg S offering ran through VMR Capital / Florian Homm entities (Giano Capital, Upper Mill) — the same offshore plumbing the enterprise would re-use for the Davi Skin pump-and-dump, where four Bermuda nominees each held exactly 3.97% below the 5% reporting line. Medicare reimbursement, in other words, capitalized the offshore infrastructure that later laundered the share dumps.54

  1. Dynamic Assocs., Inc., Reg. S convertible-note indenture (FY1996; 919 notes × $18,500; 10%; conversion $3.50, later $2.75 post-MW spin-off); ~$3.28M Medicare-funded interest to offshore noteholders; ~$6.98M officer/related-party extractions. 17 C.F.R. § 230.901 et seq.
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The strip, the certification, and the merger

With the Balanced Budget Act gutting the billing model, the enterprise cleaned the shell for re-use. Effective 1 October 2001, LATI sold the Perspectives hospital-management contracts to Horizon Mental Health Management for $2,900,000 — and in the governing Asset Purchase Agreement, Cane certified as President/CEO that no employee had been “convicted of any violation of any Medicare or Medicaid laws” or “barred from participation,” while Hunter (convicted) and Spertell (excluded) sat inside the controlled group.10

Total entity assets fell from $33.9M (1996) to $50 (2005). In the same Jan–Jun 2001 window, $8,599,085 of debt was converted to 56,580,006 Reg S shares at $0.15 — cleaning the balance sheet just enough to complete the 12 June 2001 reverse merger with Cane’s Tele-Lawyer, Inc. The Medicare engine, having served its purpose, was discarded; the reporting CIK it leaves behind becomes the host for everything that follows.62

  1. Asset Purchase Agreement, Perspectives Health Mgmt. Corp. to Horizon Mental Health Mgmt., Inc. (eff. Oct. 1, 2001) (officer certifications); asset decline $33.9M (1996) → $50 (2005); Jan–Jun 2001 debt-to-equity conversion of $8,599,085 into 56,580,006 shares; Tele-Lawyer reverse merger Jun. 12, 2001.
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Timeline

  1. 23 Jul 1994Genesis Health Management Corporation established (Louisiana); geropsychiatric units bill Medicare directly under the PPS exemption.
  2. 30 Aug 1995David Hunter co-acquires control of Dynamic Associates with Wallace; indicted on 19 Medicaid-fraud counts 21 days later (US v. Hunter, S.D. Miss.).
  3. 2 Dec 1996Dynamic Associates buys 100% of Genesis for $25,373,000 — $24,262,775 booked as goodwill.
  4. 13 Mar 1997Geriatric Care Centers of America (GCCA) merged in; combined units run up to 26 Medicare contracts across LA, AR, MS, TN.
  5. 1997–1998Peak Medicare management-fee revenue: $14.6M (1997), $12.5M (1998); Spertell (OIG-excluded) employed at the MW Medical sibling subsidiary through Aug 1999.
  6. 23 Aug 1999Q2-1999 10-QSB discloses a False Claims Act qui tam by Genesis employees — the only filing to do so; dropped from all later filings.
  7. 1999–2001Balanced Budget Act phases out the exemption; named hospital contracts terminated; revenue falls to $8.0M (1999).
  8. 1 Oct 2001Perspectives contracts sold to Horizon Mental Health for $2.9M; Cane certifies no employee convicted/barred while Hunter and Spertell sat in the group.
  9. 12 Jun 2001$8,599,085 debt converted to 56,580,006 Reg S shares; Tele-Lawyer reverse-merges into the cleaned shell as LATI — the CIK carries forward.
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Named parties

  • Jan Wallace (Dynamic Associates CEO)
  • Grace Sim (CFO/Secretary/Treasurer)
  • Kyleen Cane (securities counsel; later LATI CEO/CFO; signed the Horizon certification)
  • David Hunter (co-acquirer; convicted of 19 Medicaid-fraud counts; OIG-excluded 1996)
  • Robert B. Spertell, M.D. (OIG-excluded 1991; employed at MW Medical subsidiary 1996–1999)
  • Entities: Dynamic Associates (CIK 0000878146) · Genesis Health Mgmt. · Geriatric Care Centers of America · Perspectives Health Mgmt. · Horizon Mental Health Mgmt.
  • Offshore: VMR Capital / Florian Homm, Giano Capital, Upper Mill (Reg S noteholders)
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Citations & pleadings