United States v. Abou-Khatwa

• Decision Date: 15 July 2022
• Docket Number: 21-3036
• Citation: 40 F.4th 666
• Parties: UNITED STATES of America, Appellee v. Tarek ABOU-KHATWA, also known as Dean Addem, Appellant
• Court: U.S. Court of Appeals — District of Columbia Circuit

40 F.4th 666

UNITED STATES of America, Appellee

v.Tarek ABOU-KHATWA, also known as Dean Addem, Appellant

No. 21-3036

United States Court of Appeals, District of Columbia Circuit.

Argued April 7, 2022

Decided July 15, 2022

William E. Zapf argued the cause for appellant. With him on the briefs was Jonathan S. Jeffress.

Finnuala K. Tessier, Attorney, U.S. Department of Justice, argued the cause and filed the brief for appellee. Jeremy R. Sanders, Trial Attorney, entered an appearance.

Before: SRINIVASAN, Chief Judge, MILLETT and WILKINS, Circuit Judges.

Opinion for the Court filed by Circuit Judge MILLETT.

MILLETT, Circuit Judge : Tarek Abou-Khatwa challenges his convictions for health care fraud, false statements relating to health care matters, mail fraud, wire fraud, and identity theft. Abou-Khatwa connected small businesses and non-profits with health care plans offered by CareFirst Blue Cross Blue Shield ("CareFirst"), a health insurance company. A jury found that Abou-Khatwa falsified information about those businesses and their employees to artificially lower the health insurance premiums CareFirst charged. He then directed his clients to pay higher premiums than CareFirst was charging and pocketed the difference.

Abou-Khatwa seeks the dismissal of most of the counts of his indictment and a new trial on the remaining counts. In his view, the indictment failed to allege a convergence between the deceived entity, CareFirst, and those deprived of property—which, in Abou-Khatwa's view, were his clients. In other words, he claims that the indictment did not allege that he defrauded CareFirst of any of its own property. He argues instead that the indictment and trial improperly relied on evidence that he defrauded his small business clients by overcharging them for health insurance premiums. He also brings a number of evidentiary challenges.

There is no convergence problem in this case. The indictment alleged that Abou-Khatwa defrauded CareFirst, causing it to lose money. That is the same fraud that the government proved at trial. The differential between the falsely lowered premiums that Abou-Khatwa tricked CareFirst into charging and those he billed his clients represented, at least in part, property fraudulently taken from CareFirst. That price difference also helped to show Abou-Khatwa's profit motive for the fraud, and demonstrated that he was neither acting as a Robin Hood nor at the behest of his clients to help reduce their premiums. None of Abou-Khatwa's other challenges on appeal succeed, so we affirm the district court's judgment.

I

A

Abou-Khatwa was the Chief Executive Officer and founder of a firm named Benefits Consulting Associates. Through that business, he sold CareFirst insurance to a number of small businesses.¹

Leveraging his knowledge of CareFirst's procedures and requirements, Abou-Khatwa manipulated his clients’ information—such as the number of people they employed and individual employees’ identities, ages, and occupations—to obtain lower insurance premiums from CareFirst. Of these factors, age was the single most important factor CareFirst used in setting insurance premiums. Abou-Khatwa made the average age of employees look lower by altering the birthdates of individual employees, adding fake, younger employees to employee rosters, and falsely listing employees as affiliated with different employers or with shell entities he created so as to alter the age balance of employee groups. In addition, he misused the names and Social Security numbers of former clients to pad company rosters with seemingly younger members.

Abou-Khatwa also knew that once CareFirst establishes a business's insurance rate, it remains locked-in for the entire year, regardless of the addition or subtraction of any new members. Every subsequent year, CareFirst recalculates the insurance rate during its annual renewal process. Approximately 60–75 days prior to the renewal date, CareFirst reviews the group's current enrollment data and calculates the average age as of that date. The rate is updated for the next annual cycle to reflect the new group size and average age of members.

Aware of CareFirst's practices, Abou-Khatwa amended employee rosters 90 days prior to the insurance renewal date to ensure that CareFirst used the false employee information in setting the next year's premium. Then, after rates were locked in for the year, he would go back and scrub some of the false employee information from the records.

In the process of procuring unwarrantedly low insurance plans for his clients, Abou-Khatwa violated many of CareFirst's specific requirements for the sale of insurance to small companies. For example, CareFirst does not allow employees of multiple small companies to be insured under one group. In addition, CareFirst requires that at least 75% of a company's employees eligible for medical coverage enroll so that there is a mix of "young and healthy" as well as "older and sick people" in the insured group. Trial Tr. 490:18–19 (Oct. 29, 2019), Government's Supplemental Appendix ("GSA") 618. CareFirst informed brokers of these rules for rate-setting, and Abou-Khatwa falsified his way around them.

Abou-Khatwa spelled out his scheme in detailed, handwritten notes found in his home and office. For example, Abou-Khatwa made a note to himself to "[m]ake sure the [employee] census is modified prior to 90 days." Gov't Ex. 23, GSA 1945. The notes also explain that his process during the renewal period included "modify[ing] [dates of birth] [t]o bring [the] average age below 35[.]" Gov't Ex. 20, GSA 1939. He elaborated in his notes that, during the renewal period, he could also "add[ ] DUMIES"—dummies—as extra "young members" of a group. Gov't Ex. 29, GSA 1954.

As an "EXAMPLE" of his strategy, Abou-Khatwa's notes explained that if an insurance plan had a January renewal, he had to "[a]dd dummies the first week of Sept[ember,]" and make October 1st the "effective date" of employment for those "dummies[.]" Gov't Ex. 29, GSA 1954 (some emphases omitted). He noted that he should "[k]eep them in the Group [for] [ ]45 days * * * which [would] be till Nov[ember] 15th[.]" Gov't Ex. 29, GSA 1954. On that date, he planned to "terminate them retro (45 days) Sept. 31st effectively creating a WASH [.]" Gov't Ex. 29, GSA 1954. He also kept a "2013 Master Subscriber List" that consisted of tables and documents showing clients’ real employers as well as their falsified assignment to the entity used to group them for insurance purposes. Trial Tr. 1014:16 (Nov. 1, 2019), GSA 1142; Gov't Ex. 58, GSA 1961–1975.

By "lower[ing] [the] average age" in that way, Abou-Khatwa's notes documented that he could achieve a "maximum return" on his fraud. Gov't Ex. 22, GSA 1942 (emphases omitted). Abou-Khatwa then turned around and offered his clients higher (but still competitive) rates for their health insurance premiums than CareFirst charged, lining his own pockets with the difference. Over three and a half years, Abou-Khatwa accumulated for himself millions in fraudulently obtained funds.²

B

A federal grand jury indicted Abou-Khatwa on 24 counts, covering health care fraud in violation of 18 U.S.C. § 1347, making false statements related to health care matters in violation of 18 U.S.C. § 1035(a)(2), mail fraud in violation of 18 U.S.C. § 1341, wire fraud in violation of 18 U.S.C. § 1343, and identity theft in the first degree in violation of 22 D.C. Code §§ 3227.02(1) and 3227.03(a).

The sole health care fraud count—Count 1—charged Abou-Khatwa with "knowingly, willfully, and with intent to defraud, execut[ing] a scheme and artifice: (a) to defraud a health care benefit program, * * * namely CareFirst, * * * and (b) to obtain money from CareFirst by means of materially false and fraudulent pretenses and representations and the concealment of material facts[.]" Joint Appendix ("J.A.") 4. The indictment detailed that Abou-Khatwa "unlawfully enrich[ed] himself by creating fake groups of insured individuals, which included both fictitious names and real people with altered years of birth, to fraudulently obtain lower insurance premium quotes from CareFirst[.]" J.A. 4. "[O]nce the premium rates were set, [Abou-Khatwa] had the CareFirst invoices sent directly to him instead of his clients, marked up the insurance premiums charged by CareFirst, and pocketed the difference between the two." J.A. 4. "Through this scheme, [Abou-Khatwa] fraudulently siphoned off in excess of $2 million in illegal proceeds, and diverted the proceeds of the fraud for his personal use and benefit." J.A. 4.

The mail fraud counts—Counts 5 through 12—and wire fraud counts—Counts 13 through 18—each alleged that "Abou-Khatwa[ ] devised and intended to devise a scheme to defraud CareFirst[.]" J.A. 8–9. Each count is associated with a particular date in 2013 and a specific mailing or wire communication made for the purpose of executing or attempting to execute his scheme.

The counts charging Abou-Khatwa with false statements related to health care matters—Counts 2 through 4—and identity theft—Counts 19 through 24—are tied to particular dates and people or entities whom Abou-Khatwa used as part of his scheme, either by using their name or social security number without permission or by making a false statement about them.

In November 2019, a jury found Abou-Khatwa guilty on all counts.³ The district court subsequently sentenced Abou-Khatwa to 70 months in prison and 36 months of supervised release. The district court also ordered him to pay $3,836,709.34 in restitution to CareFirst.

II

The district court exercised jurisdiction under 18 U.S.C. § 3231, and this court has appellate jurisdiction under 28 U.S.C. § 1291.

III

Abou-Khatwa raises five challenges on appeal. First, he contends that the fraud charges in the indictment should have been dismissed because they failed to conform to the doctrine of convergence. Second, he argues that the district court improperly introduced evidence of uncharged crimes...