2003-07-02 -- Medical World Communications -- Settlement -- News Release

Jamesburg Trade Magazine Publisher Pays $3.7 Million to Settle Allegations of Defrauding Postal Service

TRENTON - A Jamesburg medical magazine publisher today agreed to pay the government $3.7 million to settle allegations that it defrauded the United States by failing to pay adequate postage for mailing its periodicals, U.S. Attorney Christopher J. Christie announced.

The settlement resolved the allegations of a civil complaint unsealed last December by U.S. District Judge Garrett E. Brown, Jr. against Medical World Communications (Medical World), company Chairman, President and Chief Executive Officer John J. Hennessy, and Media/Communications Partners of Boston, 70-percent owner of Medical World, and other defendants. The complaint alleged violations of the False Claims Act, which permits recovery of triple the amount of the damages to the government plus penalties, according to Assistant U.S. Attorney Michael A. Chagares, chief of the U.S. Attorney's Office Civil Division.

The settlement was signed and is effective today.

The lawsuit was originally filed under seal under the whistle blower provisions of the False Claims Act by Peter F. Sprague, a former Chief Operating Officer of Medical World. These whistle blower provisions permit private citizens to bring suit on behalf of the United States and share in any recovery obtained by the government.

The complaint states that if more than 50 percent of persons receiving a mailed periodical requested the periodical, then the periodical qualifies for a reduced postage rate. The complaint alleges that the defendants knowingly misstated the rate of requesters on numerous publications from about 1994 until 2000, inflating the numbers reported to over 50 percent, to avoid paying higher postage rates.

The complaint further alleges that the fraud scheme continued, despite Sprague's attempts to enlist his superiors to stop the fraud.

Under the False Claims Act, Sprague could be entitled to a share of as much as 25 percent of the settlement.

"We strongly encourage citizens like Mr. Sprague to come forward to advise us about fraud that costs the government and taxpayers," Christie stated.

The alleged postage fraud scheme involved trade periodicals including Physical Therapy Products, Chiropractic Products, Plastic Surgery Products, Podiatric Products, Orthodontic Products, Compendium of Continuing Education in Dentistry, Cardiology Review, Resident and Staff Physician, Family Practice Recertification, Surgical Rounds and Clinical Lab Products.

The settlement also requires Medical World to comply with a Corporate Integrity Agreement (CIA) that contains provisions to ensure Medical World abides by Postal Service regulations. Medical World agreed in the CIA to, among other things, create a compliance committee and code of conduct, adopt policies and procedures to ensure compliance, conduct training, prepare audits and share them with the government and promptly notify the government of any statutory or regulatory violations.

Medical World denied any wrongdoing.

Christie credited Postal Inspectors with the U.S. Postal Inspection Service, under the supervision of Postal Inspector in Charge Martin D. Phanco, with investigating the case.

The case was handled by Assistant U.S. Attorney Chagares, chief of the U.S. Attorney's Civil Division in Newark, and Assistant U.S. Attorney Stuart A. Minkowitz.

-end-

Defense Counsel for Medical World: Samuel Moulthrop, Esq. Morristown

Attorney for Sprague: Nicholas Harbist, Esq. Cherry Hill