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Press Release

United States Files False Claims Act Complaint against Participants in Hospital Development Project for Improperly Obtaining Government-Insured Loan and Misusing Loan Funds

For Immediate Release
Office of Public Affairs

The United States has filed a complaint under the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 against Lakeway Regional Medical Center, LLC (LRMC); Surgical Development Partners, LLC (SDP); G. Edward Alexander; Frank Sossi; and John Prater for improperly obtaining a loan insured by the Federal Housing Administration (FHA) and for impermissibly distributing project funds relating to the development of Lakeway Regional Medical Center in Lakeway, Texas, the Department of Justice announced. 

“Participants in FHA programs undertake important commitments, and they must honor them and be truthful in their representations,” said Assistant Attorney General Jody Hunt of the Department of Justice’s Civil Division.  “This lawsuit demonstrates the Department’s commitment to holding accountable those who violate the requirements of this important program.”

“We will do what it takes to ensure that the American people are not left footing the bill when borrowers fail to comply with FHA program requirements intended to protect the public fisc,” said U.S. Attorney John Bash of the Western District of Texas. 

The FHA, part of the U.S. Department of Housing and Urban Development (HUD), insures loans used to build hospitals in underserved areas.  The United States’ complaint alleges that the defendants participated in a scheme to improperly obtain an FHA-insured loan to build the Lakeway hospital by delaying refunds to investors who had cancelled their investments to make it appear as if the project satisfied mortgage covenants regarding the cash on hand required to close the loan.  The complaint also alleges that the defendants impermissibly distributed project funds.

“It is deeply disconcerting when industry professionals, who have fiduciary responsibilities and are expected to act as honest brokers, exploit federal programs created to aid legitimate medical facilities,” said Jeremy L. Kirkland, Counsel to the Inspector General, HUD Office of Inspector General.  “This settlement demonstrates our continuing resolve, and should serve as a warning, that we will pursue those engaged in behavior that undermines federal insurance programs.”

“HUD will not tolerate FHA participants obtaining federally insured mortgages under false pretenses,” said HUD General Counsel Paul Compton.  “Lakeway Regional Medical Center and its affiliates misrepresented facts that enabled them to obtain an FHA insured loan, and deliberately hid certain information from HUD.  Today, HUD joins the Justice Department and the U.S. Attorney for the Western District of Texas to send a very clear message that the United States will seek accountability against those who defraud HUD programs.”

This matter was investigated by the Commercial Litigation Branch of the Department of Justice’s Civil Division, the U.S. Attorney’s Office for the Western District of Texas, HUD, and the HUD Office of Inspector General.  The claims asserted against the defendants are allegations only, and there has been no determination of liability.

Updated September 25, 2019

False Claims Act
Press Release Number: 19-1030