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Lawyers with the Securities and Exchange Commission have served a subpoena on Archegos Capital Management, the $10 billion family investment office that suddenly collapsed in March, roiling the stock market as its losses reverberated through the banking industry, the New York Times reported. The issuance of a subpoena is not particularly surprising as lawyers from the SEC, the Manhattan U.S. attorney’s office and the Commodity Futures Trading Commission have been looking into the collapse of Archegos since its heavy bets on a small number of stocks rapidly unraveled seven months ago. Even so, the subpoena marks the transition to a formal investigation. Investigators are focusing mainly on whether Archegos’s founder, Bill Hwang, misled the banks through which he invested in sophisticated derivatives about the risk he was taking on at his firm. The SEC is also believed to be looking into whether Archegos violated any regulating rules that would have required the firm to disclose some of its hefty stock position. In appearances before Congress, Gary Gensler, the SEC’s chair, has said that the Archegos trading debacle revealed gaps in the regulatory requirements for investment firms and lightly-regulated family offices when it comes to disclosing big positions in derivatives.

An emergency relief program hastily rolled out in the early days of the pandemic had such poor fraud protections that it improperly doled out nearly $4.5 billion to self-employed people who said they had additional workers — even those who made wildly implausible claims, like having 1 million employees, the New York Times reported. The $20 billion program, called the Economic Injury Disaster Loan Advance, offered small businesses immediate grants of up to $10,000 in the months after the pandemic shuttered much of the economy. But hundreds of thousands of the grants it made were inflated because there was no system to catch applications with “flawed or illogical information,” Hannibal Ware, the Small Business Administration’s inspector general, wrote in a report released yesterday. The report, which described how the agency could have spotted obviously bogus applications by taking even rudimentary steps to prevent fraud, was the latest black eye for the SBA, a small department that was thrust to the front lines of the government’s pandemic response. The agency also ran the Paycheck Protection Program, which gave out $800 billion in bank-issued loans but often left lenders and borrowers scrambling to comply with confusing and shifting rules. Fraud was a problem there, too: Tens of billions of dollars may have been taken improperly. The loan-advance grants were created by Congress in March 2020 as part of its first coronavirus aid package. Intended to quickly get money to devastated companies, the program offered grants to businesses that applied for a disaster loan — and allowed applicants to keep the money even if their loan request was rejected. In the 14 weeks the program operated before it ran out of money, nearly 5.8 million applicants received grants based on their company’s head count: $1,000 each for up to 10 workers. Sole proprietors and independent contractors who employed only themselves should have collected a maximum grant of $1,000 — but many collected bigger checks.

Eighteen former NBA players were charged yesterday with pocketing about $2.5 million illegally by defrauding the league’s health and welfare benefit plan in a scam that authorities said involved claiming fictitious medical and dental expenses, the Associated Press reported. “The defendants’ playbook involved fraud and deception,” U.S. Attorney Audrey Strauss told a news conference after FBI agents across the country arrested 15 ex-players and one of their wives in a three-year conspiracy that authorities say started in 2017. According to an indictment returned in Manhattan federal court, the ex-players teamed up to defraud the supplemental coverage plan by submitting fraudulent claims to get reimbursed for medical and dental procedures that never happened. Strauss said prosecutors have travel records, email and GPS data that proves the ex-players were sometimes far from the medical and dental offices at the times when they were supposedly getting treated. In one instance, she said, an ex-player was playing basketball in Taiwan when he was supposedly getting $48,000 worth of root canals and crowns on eight teeth at a Beverly Hills, Calif., dental office in December 2018. The indictment said the scheme was carried out from at least 2017 to 2020, when the plan — funded primarily by NBA teams — received false claims totaling about $3.9 million. Of that, the defendants received about $2.5 million in fraudulent proceeds. Read more.

Health care fraud is one of the many key topics that will be addressed at ABI’s Health Care Program, set for Oct. 25-26 in Nashville, Tenn. (virtual option available). Find out more about the program and register today!

A utility executive who repeatedly lied to keep investors pumping money into South Carolina’s $9 billion nuclear reactor debacle will spend two years in prison for fraud, a federal judge decided yesterday, the Associated Press reported. Former SCANA Corp. CEO Kevin Marsh agreed with prosecutors that he should serve the sentence and the judge approved the deal, making him the first executive put behind bars for misleading the public on the project, which failed without ever generating a watt of power. Marsh said that he wants to serve his time as soon as he can because his wife of 46 years has incurable breast cancer, and he hopes to care for her after leaving prison. The judge agreed to have him report to a federal prison in North Carolina in early December. U.S. District Judge Mary Geiger Lewis cited Marsh’s remorse and expansive cooperation with federal authorities as she reluctantly accepted the plea deal, which is well below the federal sentencing guidelines of five years. She said the prosecution and defense depiction of the crime Marsh committed is a “vanilla way to describe it,” adding that it understates “the seriousness of this non-disclosure.” A second former SCANA executive and an official at Westinghouse Electric Co., the lead contractor to build two new reactors at the V.C. Summer plant, have also pleaded guilty. A second Westinghouse executive has been indicted and is awaiting trial. Marsh pleaded guilty in federal court in February to conspiracy to commit wire and mail fraud, and in state court to obtaining property by false pretenses.

Long-time U.S. Department of Justice official Daniel Kahn, who oversaw high-profile bribery cases against French energy company Alstom SA and Brazilian construction conglomerate Odebrecht SA, is leaving government for the private sector, Reuters reported. Kahn will join white-shoe defense firm Davis Polk & Wardwell. The U.S. Senate confirmed Kenneth Polite to lead the Justice Department's criminal division in July, but Polite has yet to make permanent picks to lead the division's fraud section, which spearheads the agency's criminal enforcement against corporations and their executives. Last year, the fraud section secured $2.9 billion in U.S. criminal penalties and payments, and settled several high-profile cases including a market-manipulation probe against JPMorgan Chase & Co. and foreign bribery charges against Goldman Sachs Group Inc. for its role in Malaysia’s 1MDB corruption scandal. The companies admitted wrongdoing as part of the settlements. As acting deputy assistant attorney general in the criminal division, Kahn led the criminal division's fraud and appellate sections. Before that, he had various leadership roles within the fraud section, including three years overseeing the team that handles foreign bribery cases. He joined the Justice Department in 2010 after working six years at Davis Polk. The cases against Alstom in 2014 and Odebrecht in 2016 both resulted in corporate guilty pleas and what were record fines at the time.

A federal jury found that an Arizona helicopter maker backed by financier Lynn Tilton defrauded the U.S. military, awarding $36 million in damages to the government and whistleblowers, an amount that could be tripled under a federal law, WSJ Pro Bankruptcy reported. A jury in the U.S. District Court in Huntsville, Ala., determined on Friday that MD Helicopters Inc. broke federal rules for government contractors through its relationship with Col. Norbert Vergez, an Army procurement officer involved in awarding contracts to the company in 2011 and 2012. After retiring from the Army, Col. Vergez went to work in 2013 for Ms. Tilton’s management firm Patriarch Partners LLC and later for MD Helicopters directly, court records show. In 2015, Col. Vergez pleaded guilty to a criminal conflict of interest stemming from his connection to MD Helicopters and to making other, unrelated false statements. Col. Vergez was sentenced in 2016 to five years of probation and a $10,000 fine. Former MD Helicopters employees in 2013 filed a whistleblower complaint against the company and Ms. Tilton, its CEO at the time, saying MD had groomed the colonel for employment while enlisting his aid to secure government work. His job at Patriarch was merely a cover for his true employment at MD Helicopters, according to the complaint. Andrew Wirmani, a lawyer for the whistleblower plaintiffs, said that the amount MD has to pay out in damages is likely to be tripled, as permitted by the federal False Claims Act.