Since last September when Deputy Attorney General Sally Quillian Yates issued a memo to federal attorneys nationwide, directing the aggressive pursuit of individual corporate wrongdoers for fraud and other misconduct, the government has noticeably stepped up its investigation of corporate individuals.  Two criminal trials of former healthcare executives are set to begin in U.S. District Court for the District of Massachusetts in the next few weeks and a settlement was reached in a third matter. 

In the first trial, W. Carl Reichel, former division president of Allergan PLC’s Warner Chilcott division is under indictment for allegedly conspiring to pay kickback to doctors for prescribing the company’s drugs.  His trial began this week and is expected to last several weeks. In the second trial slated to start on June 7, two Johnson & Johnson former senior officers are charged with marketing a medical device for use not authorized by the Food & Drug Administration.  Former Acclarent CEO William Facteau and former vice president of sales, Patrick Fabian were also indicted for not disclosing the alleged conduct to parent company, Johnson & Johnson when it acquired Acclarent in 2010.

In another case, Dr. David Bostwick, ex-owner and CEO of Virginia-based Bostwick Laboratories agreed in January 2016, to pay up to $3.75 million to the federal government to settle allegations he directed facilities to bill Medicare and Medicaid for unnecessary cancer detection tests and provided kickbacks to physicians in violation of the False Claims Act.  In all three cases, the defendants have not admitted to any wrongdoing.

Healthcare fraud, waste and abuse has long been a target of the Department of Justice. In fiscal year 2015, the government recovered approximately $1.9 billion in settlements and judgments with more than half of that amount coming from investigations involving violations of the False Claims Act by providers and companies in the healthcare industry.  Investigations of pharmaceutical manufacturers, medical device manufacturers, hospitals, physicians, pharmacies, laboratories and others involved in the delivery of services and products in the healthcare industry have contributed to the enforcement landscape and the culture shift within the Department of Justice.

The policy outlined in the Deputy Attorney’s memo have had many in the white collar defense bar opining about what it means and what will happen as a result of the new policy.  Internally at the Department of Justice the policy is referred to as the Individual Accountability Policy however, it is now commonly referred to as the “Yates Memo.”  The six steps set out in the Yates Memo have been widely published however, they bear repeating for further consideration:

  • To be eligible for any cooperation credit, corporations must provide to the DOJ ALL relevant facts about the individuals involved in corporate misconduct.
  • Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.
  • Criminal and civil attorneys handling corporate investigations should be in routine communication with one another.
  • Absent extraordinary circumstances, no corporate resolution will provide protection from civil or criminal liability for any individuals.
  • Corporate cases should not be resolved without a clear plan to resolve related individual cases before the statute of limitations expires and declinations as to individuals in such cases must be memorialized.
  • Civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual’s ability to pay.

While some of the steps reflect current policy, others have been added to give federal attorneys additional leverage over corporations that may seek to protect high-level executives from civil penalties or prosecution.  Executives and senior management should take particular note of the policy to focus on individuals at the beginning of an investigation.  The notion that a cooperating company must relate facts about the conduct of individuals in order to gain cooperation credit is nothing new to government investigations.  What has changed is the consequences of not doing so. 

In order to be eligible for any credit for cooperation with a federal investigation, a company must identify all individuals involved in or responsible for the misconduct that is the target of the investigation, regardless of their position or status in the company. Companies may not “pick and choose” what facts will be disclosed, but must present complete factual information in order to be considered for cooperation credit.  Companies are expected to conduct a thorough investigation tailored to the scope of the alleged wrongdoing.  The determination of the scope is always case specific, making it impossible to lay out hard and fast rules.  Therefore, when faced with question of scope, the company’s legal counsel should discuss with the prosecutor. 

In remarks made by Deputy Attorney General Yates on May 10 to the New York City Bar Association White Collar Crime Conference, she humorously quipped, “…the company is not required to serve up someone to take the fall in order for the corporation to get credit - a hypothetical person sometimes referred to as the “vice president in charge of going to jail.”  Ms. Yates made it abundantly clear that the government is not looking to collect corporate heads but rather, seeking to get to the bottom of who did what and if there are culpable individuals, hold them accountable.

“We recognize that our obligation is about more than recovering the most money from the greatest number of companies.  It’s also about deterrence, about stopping fraud from happening in the first place and about redressing misconduct of those responsible,” said Yates.

Prior to the Yates Memo policy implementation, the government would focus their efforts on recovering the most money possible, which generally meant a focus on the corporation.  The new culture shift is to not choose the highest paying resolution but instead focus on the real culpability as a means to deter future misdeeds and have a real impact on corporate culture.  According to Deputy Attorney General Yates, the government is affirmatively hearing that the new approach to target individuals is causing positive change within companies.  Compliance officers have said that the government’s focus on individuals is helping them guide their executives and employees within their orgainzations towards best practices. 

As we have said in previous articles, the implementation of the Yates Memo policies is a game changer for corporate executives and senior management.  It is imperative that companies give serious consideration to the efficacy of the organization’s compliance program, including thorough internal investigations of alleged violations of policy and law, and regular audits of high risk areas.  Executives who promote a culture of compliance up and down the corporate structure will be better positioned to defend themselves and the company against government accusations of wrongdoing.