Since the 2008 financial crisis, the Department of Justice has faced criticism for not aggressively prosecuting individuals and companies for alleged wrongdoing. The Department has acknowledged and addressed this criticism in speeches and policy statements, notably the September 2015 Yates Memorandum, which declared a heightened commitment to prosecuting individuals for white-collar crimes and, as I have written elsewhere, a heightened expectation of corporate cooperation in the investigation of employee conduct.
Recent (and not so recent) results in the courtroom suggest how difficult it may be for the Department to prosecute individuals successfully. For example, last month, after three weeks of testimony, a federal jury in Boston acquitted a former pharmaceutical executive of conspiring to pay kickbacks to doctors to induce them to prescribe his employer’s company’s prescription medicine. W. Carl Reichel, the former president of Allergan PLC’s Warner Chilcott unit, was accused of overseeing a strategy of having sales representatives entertain doctors at lavish dinners and pay bogus “speaker” fees to doctors in exchange for prescribing certain drugs. Reichel’s acquittal was particularly striking, coming after Warner Chilcott pled guilty to similar charges in October 2015 (and paid $125 million to resolve a range of alleged wrongdoing, including the conduct at issue in the Reichel case), and after other former Warner Chilcott district managers and a prescribing doctor also pled guilty to various related charges.
The result in this case is not the first instance in which individuals prevailed in a high-profile health care-related prosecution after their employer pled guilty. In January 2012, the same office that prosecuted Mr. Reichel agreed to dismiss all charges against three executives of Stryker Biotech LLC, five days after opening statements in a case accusing the defendants of fraudulent marketing practices. The company pled guilty to a misdemeanor misbranding charge and paid a $15 million fine.
In 2010, GlaxoSmithKline in-house attorney Lauren Stevens was indicted for making false statements to the Food and Drug Administration during an investigation into the company’s marketing of one of its prescription drugs. After the first indictment was dismissed, and then later a 10-day jury trial, Judge Roger Titus of the District of Maryland granted a Rule 29 motion after the government had rested and entered a judgment of acquittal without sending the case to the jury, reportedly admonishing the government that “[t]he defendant in this case should never have been prosecuted and she should be permitted to resume her career.”
In 2001, charges of illegal kickbacks were filed against eight former employees of TAP Pharmaceutical Products Inc. after the company paid a then record-high $875 million to resolve criminal and civil liability arising from essentially the same conduct underlying the case against the individuals. That trial resulted in an acquittal in 2004 following a three month trial.
The government’s difficulties at trial have not been limited to cases against former employees of pharmaceutical and medical device companies. In 2009, in the first major criminal trial that arose from the financial crisis, two former Bear Stearns hedge fund portfolio managers were acquitted of securities fraud following a three-week trial. They later paid the SEC approximately $1 million to resolve civil liability arising from the same conduct.
Nor have the Department’s recent difficulties been limited to cases against individuals. Last month, the district court granted the Justice Department’s motion to dismiss its high-profile criminal prosecution of FedEx Corp., which accused the company of conspiring to distribute prescription drugs in violation of the Controlled Substances Act. The dismissal came five days after opening statements, before the case could go to the jury. The judge reportedly declared FedEx “factually innocent” stating that the company repeatedly sought from the U.S. Drug Enforcement Administration the name of the customer who was shipping illegal drugs so it could terminate the relationship but the DEA did not provide the information.
Of course, the Justice Department has a very high overall success rate in terms of guilty pleas and convictions after trial, including in white-collar prosecutions – prominent examples include insider trading cases in the SDNY in recent years. Yet, at the same time, it has had decidedly mixed results, especially when it prosecutes the conduct of employees in well-established business entities.
It may be that the record of prosecutions since the financial crisis makes more sense than is commonly accepted. Perhaps proof of individual criminal conduct did not exist or was thin and did not warrant widespread prosecution, and perhaps the facts often rightly gave rise to corporate deferred prosecution agreements and other settlements short of guilty pleas. While such issues will be left to historians and scholars down the road, for both prosecutors and defense counsel today, we are regularly reminded of the challenges that lie in trying white-collar cases against employees of well-established companies.
From The Insider Blog: White Collar Defense & Securities Enforcement.