Habib Ilahi and Grant DuBois Dissect Private Equity and How a Rise in False Claims Act Actions Will Effect PE in New York Law Journal

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In an article published in the New York Law Journal, Partner Habib Ilahi and Associate Grant DuBois discuss private equity (PE) investment in the health care and life sciences industries and the relationship between PE and False Claims Act (FCA) matters.

"With the explosion of private equity investment in the health care and life sciences industries and with what’s happening at the DOJ and in Congress regarding corporate fraud enforcement, we expect the increase in new FCA matters will continue into 2022 at breakneck speed and a portion of that will focus on PE," write Ilahi and DuBois.

Traditionally, PE focused on areas outside of health care, but health care has become a much bigger target for PE firms seeking high returns of growth, and PE investment in the health care and life sciences sector has outpaced the broader PE market, largely during the current pandemic. Analysts expect more consolidation in the market – more acquisitions in the sector, both in traditional M&A, and through PE deals – and expect PE activity in health care to continue to grow.

Although health care and life sciences are highly regulated industries, additional risk from fraud and abuse enforcement has become more significant.

"The problem with the managerial aspect of the PE model is that the more the PE firm takes over operations, the more likely it is that the government (or a FCA whistleblower) may accuse the firm of knowingly playing a role in fraudulent conduct occurring at its portfolio company, raising the risk of FCA liability," write Ilahi and DuBois. "Fraud and abuse involving government programs can not only wipe out the value of portfolio companies, it can expose the private equity firm to direct liability under federal and state false claims acts and HHS’ Office of Inspector General (OIG) exclusion authorities."

PE firms are no longer invulnerable from DOJ scrutiny or liability from their portfolio companies, so PE firms investing in highly-regulated spaces need to be cognizant of the laws and regulations designed to prevent fraud in those industries. The DOJ fully intends to focus on potential violators in the PE health care market through FCA actions.

Ilahi has extensive experience advising clients on FCA matters involving a variety of regulatory regimes and has represented clients on all three sides of the FCA, as defense counsel, relator's counsel and government counsel during his tenure as a federal prosecutor with the Fraud Section of the DOJ, Civil Division. Outside of FCA matters, Ilahi has advised and represented numerous government contractors, foreign and domestic business entities, and individuals in various criminal, civil and administrative government investigation. Ilahi will be presenting on the panel "Aseracare Update: Insights into Objective Falsity in Litigation and Trials" at the upcoming ABA 11th Annual False Claims Act and Qui Tam Trial Institute 2022 in Boca Raton, Florida in April 2022.

DuBois is a trial attorney and member of Stinson’s Business Litigation and White Collar Defense groups, where he has experience defending clients in complex commercial litigation, FCA enforcement actions and SEC investigations. Prior to joining Stinson, DuBois was an in-house litigation attorney for a Fortune 100 insurance company and also served as a felony trial prosecutor for the State of Texas.  He has a deep understanding of each phase of the litigation process, governmental investigations, and has extensive jury trial experience.  

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