Under Fire

Telehealth Co. Cardiocom Faces Patent Suit, Denies Claims

Robert Bosch Healthcare Systems claims that Chanhassen-based Cardiocom infringed on six of its patents, but Cardiocom denied the allegations.

A competitor is accusing Chanhassen-based telehealth products and services provider Cardiocom, LLC, of patent infringement, but the company on Monday denied any wrongdoing.

Palo Alto, California-based Robert Bosch Healthcare Systems, Inc., filed a lawsuit last week, alleging that the Cardiocom Telehealth system, a remote health monitoring system, infringes on six of its patents, according to court documents filed in U.S. District Court in California.

The six patents named in the suit are related to methods and devices used to securely transmit medical data and communication via the Internet or cell phones.

Daniel Cosentino, Cardiocom’s president and CEO, said in a statement that Robert Bosch’s claims are “groundless and completely without merit” and that Cardiocom’s products and services do not violate any intellectual property rights.

The Cardiocom Telehealth system allows doctors and nurses to collect data, such as patients’ vital signs, remotely through the Web or via cell phones. It also allows doctors to hold remote sessions with patients and send them medication reminders.

Robert Bosch’s lawsuit seeks to permanently stop Cardiocom from making and selling the system and to recover unspecified damages that it suffered due to Cardiocom’s “infringing activities.”

Cardiocom has about three weeks to file a response or a motion in court.

—Nataleeya Boss
([email protected])

Bixby’s Former Acting CFO Gets 8-Yr. Prison Sentence

Prosecutors say that Dennis Desender was responsible for about $4.3 million in losses to investors and an $825,866 tax loss to the Internal Revenue Service, which resulted from his failure to file federal tax returns or report his income over a three-year period.

Dennis Desender, the former acting chief financial officer for Bixby Energy Systems, Inc., was sentenced Monday to eight years and one month in prison for single counts of securities fraud and tax evasion.

U.S. District Judge Susan Richard Nelson handed down the sentence in St. Paul.

According the U.S. Attorney’s Office in Minnesota, Desender lied to investors to get them to commit large sums of money to Ramsey-based Bixby, an alternative-energy start-up.

According to the Star Tribune, Dennis told Nelson at the sentencing: “I accept responsibility. I know that I’ve affected a number of people with regards to investing in Bixby, and I’ll do my best to make them whole.”

Desender pleaded guilty to tax evasion in February 2011 and then to securities fraud last September.

In a plea agreement reached last fall, he said that from January 2010 to May 2011, while acting as a consultant for Bixby, he was responsible for raising funds for the company’s projects, including a “coal gasification” technology designed to convert coal into natural gas.

He admitted that he and others used manipulative and deceptive practices in an effort to sell securities. Desender said that he solicited unqualified investors to buy Bixby securities and routinely provided false information to both investors and potential investors.

He also told investors that Bixby’s coal-gasification project was ready for market when in fact it wasn’t.

Some investor funds were used by Bixby, but a significant portion went toward salaries and commissions paid to Desender and others at the company, the U.S. Attorney’s Office said.

Prosecutors say that Desender was responsible for about $4.3 million in losses to investors and an $825,866 tax loss to the Internal Revenue Service, which resulted from his failure to file federal tax returns or report his income over a three-year period.

According to a Star Tribune report, Nelson received letters from 160 victims of the Bixby fraud. One person who reportedly spoke out against Desender was Chris Henz, who described himself as Desender’s “significant other” for more than a decade. He told Nelson that Desender would “never change” and described the extravagant trips and lifestyle that Desender enjoyed while the fraud was taking place.

Desender is one of several Bixby leaders who have come under fire for allegedly mismanaging the company. Founder and former CEO Bob Walker was arrested in December and indicted on one federal count of conspiracy to commit securities fraud. Then in a superseding indictment filed in U.S. District Court last month, 19 additional charges related to mail fraud, wire fraud, and securities fraud were added. He’s now awaiting trial.

Additionally, in February, Gary Collyard—a broker who raised funds for Bixby—pleaded guilty to one count of conspiracy to commit securities fraud and one count of conspiracy to commit bank fraud, according to the U.S. Attorney’s Office.

In addition to some of its leaders facing various accusations, now-broke Bixby itself faced charges as well. In December, roughly a week before Walker was originally charged, Bixby admitted that it defrauded investors of between $2.5 million and $7 million. The company struck a deal with the U.S. Attorney’s Office, through which it accepted responsibility for the actions of its former workers and agreed to assist the government in its investigation in exchange for not being prosecuted.

—Christa Meland
([email protected])

U.S. Bancorp to Pay $55M to Settle Overdraft Fee Suits

The company, which was accused of manipulating customers’ transactions to generate excess overdraft fees, said it has made changes to the way it handles customers’ accounts.

U.S. Bancorp has agreed to pay $55 million to settle class-action lawsuits that accused the bank of manipulating customers’ debit card transactions so as to impose excess overdraft fees.

The settlement was announced Monday by Grossman Roth, P.A., a Florida-based law firm whose attorneys represented the plaintiffs in the class-action suits. The lawsuits against U.S. Bancorp were part of a bigger case involving 35 banks that was brought on behalf of their customers.

Lawsuits in the case claim that the banks’ computer systems re-sequenced the order of customers’ debit card and ATM transactions and processed them in order of largest to smallest, rather than in the order in which they were initiated and authorized. The suits claim that this alleged practice resulted in the banks’ customers being charged substantially more in overdraft fees than they would have had to pay if the transactions had been processed in chronological order.

“We are pleased to have achieved this result for U.S. Bank customers who were adversely affected by this anti-consumer practice,” Robert C. Gilbert, an attorney with Grossman Roth, said in a statement.

The settlement is pending approval in court.

Thirteen other banks named in the overdraft fee case have also reached settlements. They include Bank of America ($410 million), JPMorgan Chase Bank ($110 million), Citizens Bank ($137.5 million), TD Bank ($62 million), and PNC Bank ($90 million).

Meanwhile, Citigroup, Inc., Wells Fargo & Company, and Capital One Financial Corporation are among the largest banks involved in the case that have not settled, according to a Reuters report.

“We are pleased to put this matter behind us,” U.S. Bancorp told Twin Cities Business in an e-mailed statement. “We have made changes to the way we handle customers’ accounts in recent years, and we will continue to look for opportunities to enhance our consumer products.”

U.S. Bancorp is among the 10-largest public companies in Minnesota based on revenue, which totaled $19.1 billion in 2011. It is also the largest bank-holding company in the state based on assets.

—Nataleeya Boss
([email protected])

8th Guilty Plea Entered in $14M Cloud 9 Mortgage Fraud

Joseph Steven Meyer and other co-conspirators allegedly defrauded mortgage lenders in conjunction with a condo project of bankrupt St. Paul developer Jerry Trooien, who has not been charged.

An Eagan man pleaded guilty Wednesday to a single count of mail fraud in connection with a mortgage scheme involving the Cloud 9 Sky Flats condo development in Minnetonka, according to the U.S. Attorney’s Office in Minnesota.

Joseph Steven Meyer, 47, is the eighth person to enter a guilty plea in connection with the fraud, Attorney’s Office spokeswoman Jeanne Cooney told Twin Cities Business on Thursday. Nine people have been charged.

Meyer entered his guilty plea in U.S. District Court in St. Paul. He will be sentenced at a later date.

Meyer and other co-conspirators are accused of providing false information to mortgage lenders and defrauding them of $14 million in conjunction with the Cloud 9 development—a project of bankrupt St. Paul developer Jerry Trooien, who has not been charged.

Buyers who applied for mortgage loans for Cloud 9 units allegedly received kickbacks totaling 25 to 30 percent of the purchase price, and those involved in the fraud scheme allegedly kept some illicit mortgage loan proceeds for themselves as well.

More than 40 Cloud 9 units were allegedly sold through the scheme, and more than 80 percent of the loans have since defaulted.

In September, Meyer was charged in a federal indictment with numerous counts involving wire fraud, money laundering, and witness tampering—and he was scheduled to go to trial in July. Cooney said Thursday that the September indictment will be dismissed.

Meyer faces up to 20 years in prison for the mail fraud charge to which he pleaded guilty. Cooney noted that the earlier charges that were dropped won’t necessarily decrease the length of his sentence, as many white-collar criminals serve sentences for multiple counts concurrently rather than consecutively.

Jared Mitchell Rothenberger, 43, of Minneapolis is the only person charged in the Cloud 9 fraud scheme who has not entered a plea. He’s awaiting trial, and last month, he was indicted for another mortgage fraud scheme tied to the Chateau Ridge condo development in Burnsville.

—Christa Meland
([email protected])

Court Approves 3 Petters Clawback Settlements

General Electric Capital Corporation, Fredrikson & Byron, and the John T. Petters Foundation will collectively pay nearly $34 million to settle clawback lawsuits filed by bankruptcy trustee Doug Kelley.

A U.S. bankruptcy judge on Wednesday approved settlements for three clawback lawsuits that stem from Tom Petters’ $3.65 billion Ponzi scheme, according to court documents filed in U.S. District Court in Minnesota.

Under the terms of three separate settlement agreements, defendants General Electric Capital Corporation, law firm Fredrikson & Byron, PA, and the John T. Petters Foundation will collectively pay nearly $34 million to settle the suits, which were filed by bankruptcy trustee Doug Kelley.

The payments include $19 million from Fairfield, Connecticut-based GE, which was a key lender to Petters and his business interests; $13.5 million from Minneapolis-based Fredrikson, which represented Petters and his companies for roughly 15 years as outside legal counsel; and $1.25 million from the John T. Petters Foundation in Edina, which received donations from Petters and his associates. The settlement agreements were reached last month.

According to court documents filed at the time, Fredrikson did not admit to any wrongdoing and Kelley did not uncover evidence suggesting that any Fredrikson employee had “actual knowledge” of Petters’ fraud, but he believes that there were “a number of red flags that should have alerted Fredrikson & Byron to the possibility that the business allegedly conducted by Petters was fraudulent.”

Fredrikson employs about 500 people and had 230 licensed Minnesota attorneys as of April 30, making it one of the state’s three-largest law firms. The firm said last month that the settlement is funded by its insurance company and “has no impact on the financial standing of the firm.”

Meanwhile, GE also previously denied “any and all liability” and said that it extended credit to Petters and received repayment “in good faith,” according to court documents.

Kelley has filed more than 200 clawback suits in an attempt to recover so-called “false profits” from investors and others who benefitted from Petters’ fraud scheme.

Petters was convicted in 2009 of 20 counts of fraud, conspiracy, and money laundering, and he received a 50-year prison sentence in 2010. Petters’ attorney in April petitioned the U.S. Supreme Court to review his conviction, but the court denied that request last month.

—Nataleeya Boss
([email protected])

Report: Ex-Chamber Exec. Allegedly Embezzled $29K

Kimberly Michele Burkett, former director of the Long Prairie Chamber of Commerce, reportedly faces two theft charges in connection with the allegations.

The former director of the Long Prairie Chamber of Commerce reportedly faces charges based on allegations that she stole $29,192 from the organization.

According to a report by WCCO, Kimberly Michele Burkett, 33, of Browerville, faces one count of theft and one count of theft by swindle. If convicted of both counts, she faces up to 20 years in prison and a $40,000 fine, according to the news outlet.

WCCO reported that Burkett wrote checks to herself and spent the stolen funds at nail salons, lingerie shops, and tattoo-removal facilities, among other places. She also reportedly made car payments on a vehicle owned by her husband, Nathan Burkett—the Todd County Administrator.

Investigators first became aware of the allegations after a bank called the chamber and indicated there was an overdraft on one of its accounts. The Otter Tail County Sheriff’s Office and the Todd County Sheriff’s Office reportedly conducted an investigation and found that funds were missing from three chamber accounts over which Burkett had exclusive credit card access.

WCCO reported that suspicious transactions took place shortly after Burkett was hired in July 2011 and continued through April 30 of this year.

To read WCCO’s full story, click here.

—Christa Meland
([email protected])

Feds Close Investigation Into Medtronic’s Infuse Product

The findings of a probe into Medtronic’s marketing of its Infuse bone-graft product weren’t released, but Medtronic said it is pleased that the investigation is closed.

Medtronic, Inc., announced Wednesday that federal prosecutors have closed an investigation into the Fridley-based company’s marketing practices surrounding its Infuse bone-graft product.

An investigation by the U.S. Department of Justice and the U.S. Attorney’s Office in Massachusetts began in 2008 and looked into whether Medtronic marketed the Infuse product for uses not approved by the U.S. Food and Drug Administration (FDA).

Infuse is approved for use in spinal, oral, and dental graft procedures, but it has reportedly also been used in neck surgeries and other procedures. While doctors can use drugs and medical products as they see fit, it is illegal for companies to market their products for uses not approved by regulators.

Medtronic spokeswoman Cindy Resman told Twin Cities Business that regulators notified the company that they completed the investigation and “closed the file without further findings.” But according to Resman, the government has not told Medtronic whether it found any wrongdoing.

Resman did say that “this probably means that Medtronic will not face any fines pertaining to this investigation.”

A spokeswoman for the U.S. Attorney’s Office in Massachusetts declined to comment on the findings of the investigation.

“After several years of investigation, we are pleased that the Department of Justice and the U.S. Attorney’s Office have come to the decision to close their investigation of the company related to Infuse bone graft,” Chris O'Connell, executive vice president and group president for Medtronic’s restorative therapies division, said in a statement.

The Department of Justice investigation wasn’t the only piece of controversy surrounding Medtronic’s Infuse product.

In late March, Medtronic paid $85 million to settle a shareholder class-action lawsuit that was filed in 2008. The lawsuit claimed that Medtronic misled shareholders by not disclosing how much of the company’s Infuse-related revenue was derived through uses that were not approved by the FDA. The lawsuit also accused Medtronic of illegally marketing the product for unapproved uses.

In mid-2011, medical publication The Spine Journal published two articles about Infuse, one that claimed the product may increase the risk of sterility in men, and another that claimed that the product’s adverse effects were not properly reported in clinical research. The publication pointed out that researchers for 12 of the product’s 13 industry-sponsored studies had multimillion-dollar “financial associations” with Medtronic.

Then in June of last year, two members of the Senate Finance Committee sent a letter to Medtronic, seeking information about the use of the Infuse product and payments that the company made to its clinical investigators. And in October, California Attorney General Kamala Harris issued a subpoena for documents related to the Infuse product.

Meanwhile, Medtronic in August announced that it provided a $2.5 million grant to Yale University for an independent investigation of the Infuse product.

Resman said that she couldn’t comment on the Finance Committee inquiry or any ongoing litigation. She did say, however, that findings of the Yale University investigation will likely be released this fall.

Tim Nelson, an analyst in the Minneapolis office of Nuveen Asset Management, told the Pioneer Press that Medtronic’s troubles with Infuse are far from over and that the company still faces civil lawsuits related to the product.

Medtronic is the world’s largest medical device company and Minnesota’s seventh-largest public company based on revenue, which totaled $15.9 billion for the fiscal year that ended in April 2011. The company will release financial results for its latest fiscal year next week.

—Nataleeya Boss
([email protected])

Accretive Health Denies Allegations in Letter to Franken

In response to a series of questions posed by U.S. Senator Al Franken, Accretive Health released a 29-page report that denies allegations that it violated privacy laws and used overly aggressive tactics to obtain payments from patients of Minneapolis-based Fairview Health Services.

Chicago-based debt-collection agency Accretive Health, LLC, has again denied allegations that it violated privacy laws and used overly aggressive tactics for obtaining funds from patients of Minneapolis-based Fairview Health Services.

In a 29-page report released Friday in response to a series of questions posed by Minnesota’s U.S. Senator Al Franken, Accretive Health insisted that it followed industry standards for talking with patients about money they owed for health services.

Franken sent the list of questions to Accretive CEO Mary Tolan after Minnesota Attorney General Lori Swanson released a six-volume report accusing Accretive of using aggressive—and sometimes illegal—methods for collecting money from Fairview patients.

Swanson’s report claimed that Accretive imposed quotas on hospital staff to collect money from patients—sometimes before treatment was provided. The company’s “aggressive collections approach may constitute a threat to withhold medical treatment” that violated Minnesota law, Swanson alleged.

In its report released Friday, Accretive acknowledged that its employees sometimes conducted “bedside financial counseling” for patients. It said, however, that these discussions were “optional” and aimed at obtaining payments from patients’ insurance companies and helping patients better understand their out-of-pocket obligations.

The company also provided an excerpt from a script distributed to Accretive and Fairview employees, which stated that patients were “never to be denied service for non-payment” and “are never to be given the impression that service would be denied for non-payment.”

In emergency situations, discussions about payments always occurred after the patient was screened and stabilized, Accretive’s report said.

“It is clear that the attorney general’s report is highly misleading and was not informed by even a single meeting with any current Accretive Health employee,” the company said.

According to a Pioneer Press report, Franken—in response to Accretive’s report—announced that the Senate Health Committee will hold a hearing on the issue later this month.

Swanson in January filed a lawsuit against Accretive, after a company laptop—which was not encrypted and contained confidential data for roughly 23,000 Fairview and North Memorial Health Care patients—was stolen. Late last month, and about a week after Swanson issued her six-volume report, Accretive filed for dismissal of the lawsuit.

Last week, Chicago Mayor Rahm Emanuel requested that Swanson refrain from interviewing Accretive clients until she meets with the company’s CEO and asked that the two parties attempt to resolve the matter privately, but Swanson vowed to press on with the investigation into Accretive’s practices.

—Nataleeya Boss
([email protected])

Experts Weigh In on How Best Buy Handled CEO Scandal

While some experts have given the company high marks and praised it for taking a bold tack, others argue that the board was too lenient and should have taken a harsher approach.

Shortly after Best Buy Company, Inc., released the results of its independent investigation into ex-CEO Brian Dunn, experts began weighing in on how the company handled the matter—and their perspectives are widespread.

Richfield-based Best Buy said Monday that the investigation revealed that Dunn violated company policy by engaging in “an extremely close personal relationship with a female employee that negatively impacted the work environment.” Dunn “demonstrated extremely poor judgment and a lack of professionalism,” the investigation report said.

The investigation also found that Best Buy Chairman and founder Richard Schulze “acted inappropriately” when he failed to notify Best Buy’s audit committee after learning in December about allegations of such a relationship—and the company announced Monday that Schulze would step down as chairman following its annual meeting in June.

Some experts have given the company high marks and praised it for taking a bold tack.

“It’s a rare company that will turn on its founder with any kind of real discipline,” Paul Hodgson, senior research associate at New York-based GMI Ratings, a governance researcher formerly known as the Corporate Library, told the Star Tribune. “I think this was pretty strong.”

When a company executive provided Schulze with a written statement from an employee that contained allegations about a possible inappropriate relationship between Dunn and a female subordinate, Schulze confronted Dunn but failed to inform the audit committee about the allegations, according to the investigation report.

F. Daniel Siciliano, a law professor and head of Stanford University’s Rock Center for Corporate Governance, told the Star Tribune that Schulze’s exit was a “very good sign” that corporate governance is being taken seriously by the company’s independent directors.

“The board acted pretty quickly and decisively about the chair’s cover-up,” Siciliano added. “That behavior is more clearly inappropriate than the CEO’s behavior. Sitting on an allegation? There is no real excuse.”

But some argue that the board should have taken a harsher approach.

Jeffrey Sonnenfeld, senior associate dean for executive programs at the Yale School of Management, told the Star Tribune that he found the board’s response to both Dunn and Schulze “amazing” in terms of its leniency.

When Schulze steps down as chairman next month, he will become founder and chairman emeritus, an honorary position. He will also serve the remainder of his director term, which goes through June 2013.

Dunn, meanwhile, will receive a $6.64 million severance package that includes a previously earned bonus of $1.14 million, previously awarded restricted stock grants, compensation for unused vacation, and a severance payment of $2.85 million. The company said that the agreement extended his non-compete period from the standard one year to three years—and the severance package was “fair value” given that extension.

But Sonnenfeld told the Star Tribune that Schulze shouldn’t be on Best Buy’s board in any capacity and that Dunn shouldn’t have received such a reward in light of the company’s recent struggles.

“Could this company have done any worse without a board of directors? They had zero value here,” he told the Star Tribune. “Shame on this board.”

But Hodgson told the newspaper that Best Buy may not have had much of a choice in terms of Dunn’s severance package. Employment agreements typically specify that money will only be withheld if someone is terminated for cause, and a felony charge is the only thing he knows of that constitutes “cause.” Dunn likely would have sued if Best Buy had withheld severance, he added.

To read the full Star Tribune story, click here.

Schulze, 71, has had strong ties to Best Buy since he founded it. In 1966, he opened a single stereo shop in St. Paul—and he later built it into the world’s largest electronics retailer. He stepped down as the company’s CEO in 2002 but vowed at the time that he would remain chairman “until I’m called away from this earth.”

According to the Pioneer Press, he remains the company’s largest stockholder and controls 20 percent of its shares. Last September, Forbes estimated his net worth to be $2 billion, making him the 212th-wealthiest American.

Former CEO of Fridley-based Medtronic, Inc., and Harvard Business School professor Bill George told Minnesota Public Radio that it’s unfortunate that Schulze and the company he grew are parting ways on such dismal terms.

“You know, it’s sad. I wish, personally for his sake, he’d left a decade ago. Because now, it’s like a Shakespearian tragedy. He’s had an amazing career. Been entrepreneur of the year, and company of the year in 2004, and you know, he’s done everything right until this point,” George told the media outlet. “But he was just, I think, too close to his second successor, Brian Dunn, and didn’t take the appropriate action and now put the company at risk.”

—Christa Meland
([email protected])

MN Developer Jeff Wirth Pleads Guilty to Tax Evasion

The Wirth Companies owner Jeffrey Wirth admittedly conspired with his ex-wife and their tax preparer to evade federal taxes, funnel money out of the company, and use the funds for personal expenses, including the building of a mansion on Lake Minnetonka.

Local real estate developer Jeffrey Wirth on Friday admitted to conspiring to evade millions of dollars in federal taxes, according to the U.S. Attorney’s Office in Minnesota.

Wirth, who is the owner and CEO of Brooklyn Center-based The Wirth Companies, pleaded guilty to one count of conspiracy to defraud the United States. He faces up to five years in prison and will be sentenced at a later date.

Wirth admitted in his plea agreement that the scheme resulted in a loss of between $2.5 million and $7 million to the federal government, according to the Attorney’s Office.

The Wirth Companies has developed local hotels, including the Grand Hotel in downtown Minneapolis, the Grand Rios Indoor Waterpark Hotel in Brooklyn Park, and the Grand Lodge Hotel & Waterpark of America in Bloomington.

In his plea agreement, Wirth said that between 2003 and 2006, he conspired with his then-wife Holly Damiani to defraud the Internal Revenue Service (IRS) by failing to pay the taxes they owed, according to the Attorney’s Office. The scheme also involved their tax return preparer, Michael Murry, who allegedly helped the couple file false tax returns.

Wirth admitted that he and Damiani—who he divorced in 2008—often recorded personal expenses as business expenses in an effort to understate the company’s income for tax purposes. Wirth also admittedly understated his own income, claiming an annual salary of just $12,000 on his W-2 forms from 2002 through 2005, although his true income was significantly higher. Wirth and Damiani, with the help of Murry, also allegedly claimed bogus “management fees” on the company’s tax filings in order to reduce its taxable income to nearly zero.

In addition, Wirth allegedly failed to report on his company’s tax returns “substantial amounts of income” related to the development of the Grand Rios and the Grand Lodge Hotel. This caused his adjusted gross income, taxable income, and total tax to be “grossly understated” on the tax returns that he and Damiani filed, the U.S. Attorney’s Office said.

Wirth admittedly used the money from the scheme to support a lavish lifestyle. He spent $2 million to purchase an island in St. Alban’s Bay in Lake Minnetonka, at least $3 million to design and construct a mansion on the island, more than $600,000 to buy a home near Cedar Lake in South Minneapolis, and “tens of thousands of dollars” for world travel and to benefit his children, the Attorney’s Office said.

Wirth, Damiani, and Murry were indicted in August, and all three pleaded not guilty in September. But in early May and about a week before Wirth entered his guilty plea, Damiani pleaded guilty to one count of filing a false federal individual income tax return. Murry, meanwhile, on Monday pleaded guilty to one count of preparing a false corporate tax return.

—Nataleeya Boss
([email protected])