HOLLYWOOD, Calif. — A federal whistleblower suit that charges the AIDS Healthcare Foundation defrauded public programs of at least $20 million a year in false claims since 2010 has many in the biz coming to conclusions on how the nonprofit has been able to wage an expensive campaign aimed at the adult entertainment industry.
The lawsuit waged by three former employees alleges that the AHF has defrauded federal healthcare programs such as Medicare, Medicaid and Health and Human Services HIV/AIDS grant programs by unlawfully paying referral incentives to employees and patients in violation of the anti-kickback statute.
In the lawsuit, AHF President Michael Weinstein was alleged to have directed the group’s staff to put in play a nationwide patient financial incentive of $50 for them to take part in medical care. Employees, the suit said, received $100.
“Weinstein also directed a patient financial incentive of $50 to those falling out of care to induce them to return to AHF medical care and also a financial incentive of up to $50 every few months to remain in AHF care, as well as an additional financial ‘bonus’ at the end of one year of such care,” the suit said.
The AHF provides services to 350,000 people in 14 states and 36 countries and operates a chain of 22 Out of the Closet thrift stores in California, Florida and Ohio. But the majority of its revenue comes from nearly three dozen pharmacies in 10 states that are staffed by pharmacists trained to work with people suffering from HIV and AIDS.
The practice over the alleged kickbacks began in California, and then spread to other states, including Florida, where AHF has a substantial presence, the suit said.
If true, the AHF may have been able to pocket a king’s ransom for the alleged misdeeds and funnel money to other interests, including, possibly, its sharp focus on pornography and condoms.
Diane Duke, who leads the adult trade group Free Speech Coalition as CEO, told XBIZ that news of the AHF whistleblower lawsuit over alleged kickbacks is not surprising.
“For those people who have asked me where Weinstein gets the money to wage his multimillion-dollar personal vendetta against the porn industry ... now you know,” Duke said.
“Clearly for Michael Weinstein it has been all about fame and fortune at the expense of AHF's clients and people in need of HIV education and services,” she said. “That Weinstein would misuse tens of millions in federal funds earmarked HIV prevention and treatment is shocking and atrocious.”
Duke has been at the battle line for years against Weinstein over his organization’s attempt to make condoms mandatory for porn shoots.
Weinstein, who maintains that protecting porn workers is the right thing to do, has conceded that the campaign for condoms in adult entertainment is a public-relations windfall.
Weinstein, according to IRS told the Los Angeles Times in 2014 that, "we got more publicity for safer sex and condoms than we ever could have gotten any other way."
That PR windfall might have translated financially. In 2013, the AHF recorded a $756 million operating budget, a 36 percent jump from a 2012 budget of $485 million. Weinstein himself earned $396,000 in 2013, including $102,000 recorded as incentive compensation, according to IRS records.
Several years ago, Weinstein was able to win over voters over the Los Angeles County ordinance Measure B, which reportedly cost $2 million to lobby and campaign for.
He also was principally responsible for proposed new procedures for porn shoots and bloodborne pathogens in the state of California. Cal/OSHA already has rolled out a draft of California Code of Regulations Title 8 § 5193.1 and has planned a public hearing over new proposed rules next month.
Last year, after losing several attempts to make condoms mandatory for performers in the Legislature, Weinstein and the AHF moved on to a statewide ballot initiative that would mirror Measure B.
The numerous attempts to get lawmakers to move forward several Measure B-like bills at California’s Legislature proved frustrating for Weinstein and the AHF, which unleashed a number of tactics that some still question.
At the time, Weinstein accused Assemblyman Mike Gatto, a Democrat from Glendale, Calif., of "single-handedly blocking" one of several bills aimed at the adult entertainment industry, calling him the "pornographers' best friend in Sacramento" at a press conference.
He then said his group would be blitzing Gatto’s constituents with 100,000 telephone robo calls, with the message to urge the legislator to vote for the condom bill. Gatto later accused Weinstein of "scorched earth" political tactics over the robo calls.
Marc Randazza, an adult industry attorney who testified before a California legislative panel over one of the porn-condom bills presented, said that news of the alleged kickbacks in the whistleblower suit runs parallel with what he’s seen so far with the AHF.
“Given Weinstein's prior actions and shenanigans in the legislative process, it wouldn't surprise me if the allegations are true,” Randazza told XBIZ. “On the other hand, I think we need to remember that at this point these are only allegations. Anybody can file a complaint against anyone for anything.”
“That of course doesn't mean that this isn't a very well-founded lawsuit, it just means that I'm not ready at this point to string up Michael Weinstein, as much as I think the guy is a scumbag, on the basis of a plaintiffs suit filed in Florida,” Randazza said.
“Let’s see how it shakes out. My money is on the allegations being proven true, but that's all based on conjecture.”
Adult industry attorney Allan Gelbard told XBIZ that the lawsuit could be an expensive one for the AHF if the employees’ case about kickbacks is proven true.
“Under the False Claims Act, whistleblowers may obtain a portion of the moneys they recover on behalf of the government when they expose frauds,” Gelbard said. “If the facts in the first-amended complaint are to be believed, this could be many, many millions of dollars.”
James Gitkin of the law firm Salpeter Gitkin LLP, which represents the three former AHF employees — all managers — said that the plaintiffs “plan to hold AHF accountable for all these violations."
Gelbard noted that the Salpeter Gitkin law firm includes a key player on its team — former federal prosecutor Geoffrey Kaiser.
“Kaiser, is a former federal prosecutor and ... he had been chief of health fraud prosecutions in the U.S. Attorney's Office for the Eastern District of New York,” Gelbard said. "I think it safe to assume that Mr. Kaiser knows a thing or two about healthcare fraud. His name on the complaint would concern me greatly if I were Mr. Weinstein.”
Gitkin, in a statement announcing the case yesterday, said: “The resulting illegal referrals produced thousands of 'false and fraudulent' claims under the Federal False Claims Act and Florida False Claims Act and caused tens of millions of dollars in payments by federal health care programs. Furthermore, AHF violated numerous other False Claims Act provisions by its malicious retaliation against relators Jack Carrel, Mauricio Ferrer and Shawn Loftis, including violating their civil rights through unlawful termination of employment.”
Gelbard said that there could be more for the AHF and Weinstein to worry about ahead than the suit filed by the fired employees.
“If I were Mr. Weinstein, my main concern would be that several states, including California, and the federal government might start looking into the matter,” Gelbard said. “If they can prove the allegations, I would not be surprised to see criminal charges be brought against the entity, and even Mr. Weinstein personally. AHF's tax exempt status could also be in serious jeopardy.
“Of course, those in the adult industry can only ponder how much of the allegedly fraudulently obtained funds were employed by Mr. Weinstein in his anti-porn campaign.”
In reaction to the suit, Peter Acworth, the founder of Kink.com, noted that Weinstein’s fixation on lobbying for regulation in the production of porn is one that is extraordinary and expensive. Acworth has been a repeated target of Weinstein’s over production protocols.
“Honestly, at this point it’s my personal opinion that Michael Weinstein must be suffering from some form of OCD,” Acworth told XBIZ. “He is so obsessed with porn that he can’t see that performers, the public health community, and even legislators no longer take him nearly as seriously as they once did.”
Characterizing the AHF as a bully when it comes to AIDS services and resulting political maneuvers, Eric Paul Leue, Kink.com’s director of sexual health and advocacy and Mr. L.A. Leather, commented that the group has applied a cookie-cutter approach to gaining the upper hand with public institutions.
"We have seen this happen in California for a number of years, where AHF has overbilled services, sued counties, cities, departments of health, and bullied smaller foundations into submission with litigation that real non-profits can not afford to fight,” Leue told XBIZ.
“As AHF's attorney Samantha Azulay said in a case where they fought to have $100,000 funding taken away from a small organization focusing on youth in South Los Angeles, 'Sometimes you have to cut down a couple trees to save the forest.'
“That's what it comes down to: AHF is the forest. They do not care about community, they care about paying Michael Weinstein $400,000 per year."
Steven Hirsch, the founder/co-chairman of Vivid Entertainment whose studio helped fund litigation against the enforcement of Measure B, also commented, saying that the whistleblower suit should be carefully watched.
"As we've seen by Michael Weinstein’s past behavior this is certainly not a shock,” Hirsch told XBIZ. “We will have to see how the allegations play out but this could be a significant development."
On Wednesday, Weinstein said that advocacy for condoms is a miniscule part of the budget and that the whistleblower suit by former employees was baseless.
"AHF has 415,000 patients worldwide and a budget of $1 billion. This baseless claim relates to $20 million in revenue," Weinstein told XBIZ. "Our expenditures for advocacy in general and condoms specifically is less than 1 percent of our total income."
Weinstein said that "not only has AIDS Healthcare Foundation done nothing wrong, our pro-active approach to finding and linking HIV-positive individuals to lifesaving care and treatment is critical to stopping HIV in this country."
"Small incentives for linking and retaining people in care are mainstays of public health interventions," he said. "We look forward to the opportunity to rebut these baseless charges in court.”
