4 See United States v. Prigmore, 243 F.3d 1, 2001 U.S. App. LEXIS 3977 (1st Cir. 2001).
5 21 U.S.C. § 360e(d)(2).
6 21 C.F.R. § 860.7(d)(1).
7 The FDA maintains a database known as Manufacturer and User Facility Device Experience (“MAUDE”) that collects reports of adverse experiences with Class III medical devices. The purpose of this facility is to allow for constant feedback from, and sharing among, users of these devices, including physicians and hospitals. See http://www.fda.gov/cdrh/maude.html.
8 The company was sentenced on April 4, 1994 and ordered to pay a fine of $61 million, along with a special assessment of $78,200.00. This payment represented all revenues that USCI obtained from the sale of the catheters in question.
9 Janice Piasecki was acquitted by Judge Tauro at the close of the government’s evidence. George Maloney and Kenneth Thurston were acquitted by the jury.
10 United States v. Prigmore, supra.
11 See discussions of the Lachman case in Chapter Eight (National Security) and the Councilman case in the Conclusion.
12 United States v. Prigmore, 243 F.3d at 22-23.
13 Much of the information about the Health Care Fraud Unit’s history, and its pursuit of TAP Pharmaceuticals and its employees, appeared in abbreviated form in Harvey A. Silverglate, “Beantown Shakedown,” The Wall Street Journal, June 23, 2005.
14 See 21 Corporate Crime Reporter 47, November 27, 2007, available at http://www.corporatecrimereporter.com/capitals112707.htm (quoting Russell Mokhiber) (“Federal prosecutors in Boston have developed perhaps the premier health care fraud prosecution team in the country—outside of Washington.”).
15 Leichter pled guilty to 21 U.S.C. § 331(a) (prohibiting “[t]he introduction or delivery for introduction into interstate commerce of any food, drug, device, or cosmetic that is adulterated or misbranded”), with a corresponding penalty under 21 U.S.C. § 333(a)(1) (setting the maximum prison sentence as one year, and the maximum fine as $1,000).
16 See discussion of the prosecution of the KPMG tax shelter case, Chapter Five.
17 Alice Dembner, “Prosecutors Here Lead in Health Fraud Cases,” The Boston Globe, May 13, 2003.
18 Jonathan Saltzman & Liz Kowalczyk, “Drug firm, subsidiary settle suits for $515M,” The Boston Globe, September 29, 2007.
19 The federal False Claims Act, 31 U.S.C. §§ 3729 et seq., originally enacted in 1863 to prosecute profiteers during the Civil War, was substantially amended in 1986 by the False Claims Amendments Act. Under this legislation, not only was the government’s ability to recoup losses sustained from fraud committed against the United States enhanced, but the whistleblower provisions gave private persons a huge incentive to report such fraud. The government may sue to recoup three times the amount of the fraud, but individuals with knowledge of such frauds may bring suit in the government’s name and against the malefactors. Such qui tam suits are initially filed secretly, with the government being notified and given an opportunity to decide whether to join in and take over control of the civil lawsuit. When such lawsuits yield monetary judgments or settlements against the defrauders, the whistleblowers are entitled to a substantial portion of the recovery.
20 Under applicable legal principles, a conviction in a criminal case can have the effect of precluding relitigation of the underlying question of responsibility in a related civil suit. Thus, if an individual is convicted or pleads guilty in the criminal case, he normally would be unable to claim a lack of responsibility in a civil suit for monetary damages. The reverse is not true, however: A loss in a civil suit is not admissible in a criminal case to prove guilt. The underlying reason for this is that guilt in a criminal case must be proven beyond a reasonable doubt, while responsibility in a civil suit can be determined by a mere preponderance of the evidence (that is, that responsibility is more likely than not).
21 Indictment in United States v. Alan MacKenzie et al., No. 01-CR-10350 (D.Mass.), p. 26.
22 In one illustrative allegation in the indictment, the prosecutors charged that in November 1995, a sales rep reporting to one of the defendants “sought approval to give a urology practice located on Cape Cod $200 to support the practice’s annual Christmas Party.” The medical group was a Lupron purchaser. Continued the indictment about this heinous disguised bribe: “In requesting this money as an ‘educational grant’ the sales representative stated that she would ask one of the doctors ‘to talk about Lupron and prostate cancer at the party to justify the donation, ha-ha.’” Indictment in MacKenzie at p. 34. The defendant approved the “educational grant” that the indictment sarcastically put into quotation marks.
23 That defendant’s lawyer, Tracy A. Miner, noted that the TAP case and others like it “could be brought anywhere in the country, but are brought here [in Boston] because of the aggressive U.S. Attorney’s Health Care Fraud Unit.” Boston had become the Mecca for such cases. It created, admitted Miner, a partner at a major Boston law firm with a substantial white collar criminal defense practice, a growth industry for the Boston legal community. Phone interview with Miner.
24 To the extent the government should have learned a lesson from the case, the prosecution’s most astute epitaph came from a Philadelphia lawyer, Marc Raspanti, who represents whistleblowers but who was not involved in the TAP case: “The government did very well in its civil case against TAP, brought by a whistle-blower,” he told The Boston Globe. “It may have over-reached when it brought a criminal case” against individual employees. See Shelley Murphy and Alice Dembner, “All acquitted in drug kickback case,” The Boston Globe, July 15, 2004.
25 Criminal Information, United States of America v. Serono Laboratories, Inc., 05 CR 10282 (RCL) (D. Mass.), paragraph 6.
26 The government’s intent in bringing this and similar cutting-edge indictments was discussed in an article in The National Law Journal. See Robert Brady, Meredith Manning, & Peter Spivack, “Crackdown on ‘off-label’ pitches: Pharmaceutical companies have been penalized for pushing their products for unapproved uses,” The National Law Journal, March 20, 2006. The authors were partners at the major Washington firm of Hogan & Hartson, which does substantial white collar criminal defense work. One of the authors previously held several leadership positions at the FDA. The article is not explicitly critical of the Department of Justice, but simply reports that the department sought “to expand the nature and extent of company conduct it will investigate.” The article cited one case, a 2004 prosecution of Pfizer, Inc., settled with a $430 million payment for the company’s having, according to the authors, “illegally promoted its antiepileptic drug, Neurontin, for an array of unapproved uses, including pain and bipolar disorder.” “The Neurontin case,” continued the article, “stands for the novel proposition that a company’s off-label promotion is a violation of the FDA if the promotion results in submission of an off-label claim for reimbursement to a federal health care program.” The prosecution “may have established a new standard.” Similar cases were cited that were brought against other pharmaceutical companies. Thus was the government expanding the array of violations that off-label promotion might produce, such expansion accomplished by simply expanding its theories of prosecution rather than establishing, by new regulatory language, where the government would draw the line between acceptable and criminal conduct. In one of those cases, Eli Lilly & Co. agreed to plead guilty and pay a $36 million fine in connection with sales practices for its drug Evista, for which the company sought to enlarge the market “by promoting it for unapproved uses.” When discussing the Serono case, the authors cited it as further proof of the intention of the DOJ to “thoroughly examine marketing efforts such as Serono’s efforts…to convince physicians to use a drug in a wider patient population.” This prosecution “is the first known instance of the DOJ asking a company to evaluate or assess incentive compensation” as a cause of overly vigorous sales efforts, while the Eli Lilly case was “the first in which the DOJ has addressed market research as a potent
ial promotional tool.”
27 North Carolina Bar Association, Brochure for Continuing Legal Education (CLE) conference in Aspen, Colorado, Jan. 5-10, 2007, available at https://www.ncbar.org/cle/brochures/291.pdf.
28 Eric Lichtblau, “Settlement in Marketing of a Drug for AIDS,” The New York Times, Oct. 18, 2005.
29 Denise Lavoie, Associated Press, “Former Serono executives acquitted of offering kickbacks,” The Boston Globe, May 3, 2007.
30 Alex Berenson, “Indictment of Doctor Tests Drug Marketing Rules,” The New York Times, July 22, 2006. This case is also discussed in the chapter on the harassment of physicians, Chapter Two.
31 Jazz Pharmaceuticals by this time had acquired Orphan Medical, Inc.
32 Alex Berenson, “Indictment of Doctor Tests Drug Marketing Rules,” The New York Times, July 22, 2006. This case is also discussed in the chapter on the harassment of physicians, Chapter Two.
33 Id.
Chapter Four:
1 Telephone interview with a Milken attorney, who requested anonymity (June 2007).
2 Michael Powell, “A Crime Buster, With His Eye on the Future,” The New York Times, December 10, 2007.
3 Liman’s predecessor as Milken’s lead counsel was the legendary and considerably scrappier Washington lawyer Edward Bennett Williams, who died of cancer before Milken was indicted.
4 Daniel Fischel, Payback: The Conspiracy to Destroy Michael Milken and His Financial Revolution (New York: HarperBusiness, 1995). Material and analyses from Professor Fischel’s book have proven invaluable in corroborating and supplementing portions of this chapter.
5 Roughly, here is how the “scheme” worked: Solomon in 1985 asked Milken and Rosenthal if Drexel could assist him in obtaining short-term capital losses that he could use on his tax return for that year to offset gains in his account. The type of transaction suggested would have the effect of delaying any tax due by one year. (Wage earners pay income tax on their annual earnings. Investors, on the other hand, pay capital gains taxes on profits realized from the sale of their investments. If a sale is made within a short period of time from the date of purchase, it is considered a “short-term capital gain” and subject to a higher tax rate. In contrast, if the investment is held longer, the tax rate is that for “long-term capital gains,” which is lower.) Since the transaction involved an actual loss, Milken promised Solomon that he would keep Solomon in mind when a good investment came up in the following year. That way, Solomon could make up the loss. And since that “make up” investment, if held for more than six months, would produce a long-term capital gain, it would be taxed at a lower rate than either ordinary income or a short-term capital gain.
6 Editorial, “Explanation in Order,” The Wall Street Journal, June 12, 1992.
7 Ronald Sullivan, “Former Protégé of Milken Convicted for a Kickback,” The New York Times, June 11, 1992 (“Lawyers on both sides said Mr. Milken, who is eligible for parole in 25 months, did not greatly help his chances of reducing his term because his testimony was seen as helping as much as hurting Mr. Rosenthal.”).
8 United States v. Quattrone, 441 F.3d 153 (2d Cir., 2006).
9 Per interview with Quattrone’s legal counsel, Kenneth Hausman, June 13-14, 2007.
10 It is worth quoting Char’s email in full:With the recent tumble in stock prices, and many deals now trading below issue price, the securities litigation bar is expected to [sic] an all out assault on broken tech IPOs.
In the spirit of the end of the year (and the slow down in corporate finance work) we want to reminding [sic] you of the CSFB document retention policy. The full policy can be found at http://intranet.csfb.net/GlobalIBD/Lcd/doc_retention_us.html The relevant text is:
“For any securities offering, the Designated Member should create a transaction file consisting of (i) all filings made with the SEC in connection with an SEC registered offering or, in an unregistered offering, the final offering memorandum used in a Rule 144A offering or other form of private placement, (ii) the original executed underwriting or placement agent agreements, (iii) the original executed comfort letters from accountants, (iv) the original executed opinions of counsel and (v) a completed document checklist (see Exhibit B hereto). In order to avoid confusion and ensure greater compliance with these policies, no file categories other than those set forth in Exhibit B may be created in connection with any CSFB managed securities offering without the approval of your team leader and a lawyer in the IBD Legal and Compliance Department or the CDC manager.”
So what does it mean? Generally speaking, if it is not (i)–(v), it should not be left in the file following completion of the transaction. That means no notes, no drafts, no valuation analysis, no copies of the roadshow, no markups, no selling memos, no IBC or EVC memos, no internal memos.
Note that if a lawsuit is instituted, our normal document retention policy is suspended and any cleaning of files is prohibited under the
CSFB guidelines (since it constitutes the destruction of evidence). We strongly suggest that before you leave for the holidays, you should catch up on file cleanup.
Quoted from United States v. Quattrone, 441 F.3d 153 [slip op. at p. 11].
11 Andrew Ross Sorkin, “NASD Ends Case Against Quattrone,” The New York Times, June 2, 2006.
12 Randall Smith, “Regulators Drop Civil Case Against Frank Quattrone,” The Wall Street Journal, June 2, 2006.
13 Andrew Ross Sorkin, “NASD Ends Case Against Quattrone,” The New York Times, June 2, 2006.
14 Editorial, “Quattrone’s Intent,” The Wall Street Journal, March 22, 2006.
15 Roger Parloff, “Why Quattrone Deserves to Walk,” Fortune, March 21, 2005.
16 Interview of Kathleen Ridolfi by Harvey A. Silverglate.
17 Andrew Ross Sorkin, “NASD Ends Case Against Quattrone,” The New York Times, June 2, 2006 (“Mr. Quattrone’s lawyers argued that NASD did not adopt rules governing the practices in question until 2002.”); see also Randall Smith, “Regulators Drop Civil Case Against Frank Quattrone,” The Wall Street Journal, June 2, 2006 (“But Quattrone’s lawyers argued that the rules in effect at the time, since bolstered, didn’t bar his actions.”).
18 According to Quattrone’s attorney, NASD did not propose rules addressing the long-standing and widespread industry practices challenged in its action against Quattrone until 2002, well after the period on which the charges were based (1999-2001). A new rule concerning IPO allocations to executives of investment banking clients (Rule 2712), which was proposed in 2002, still has not been approved. A new rule governing research analysts’ compensation and interactions with bankers and corporate clients (Rule 2711) was adopted in May 2002, and even then allowed firms a several-month grace period to develop procedures to comply with the sweeping changes of the new regime.
19 Pamela A. MacLean, “Limited fallout from ‘Quattrone’: Broader language in Sarbanes-Oxley will ease way for prosecutors,” The National Law Journal, March 27, 2006.
20 Stewart completed her sentence in March 2005.
21 18 U.S.C. § 1001.
22 Commentators have marveled at such a situation: It is a felony to lie to any one of the many hundreds of thousands of federal officials strewn throughout the country about any matter arguably within their jurisdiction to inquire about, even if the person making the statement is not put under oath. Because the typical reasonably educated citizen knows that it is a crime (perjury) to lie under oath (such knowledge of the law being common and intuitive, given the formality of the administration of the oath), that same citizen would likely find it counterintuitive that the oath is in fact largely irrelevant, and that it is a felony to lie to government officials even when not sworn to tell the truth.
23 Securities Exchange Act of 1934, Section 10(b).
24 The SEC thus enacted Rule 10b-5, which provides:It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facilities of any national securit
ies exchange,a. To employ any device, scheme, or artifice to defraud,
b. To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
c. To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security.
25 Daniel Fischel, Payback: The Conspiracy to Destroy Michael Milken and His Financial Revolution (New York: HarperBusiness, 1995) 57-58.
26 Id. at 59.
27 Michael McMenamin, “St. Martha: Why Martha Stewart should go to heaven and the SEC should go to hell,” Reason, October 2003 (“But open-endedness has its advantages. It allows the SEC to ignore, condone, or even facilitate insider trading when it chooses and then go after a juicy target like Martha Stewart, whose alleged insider trading is well outside anything recognized as such by the Supreme Court.”).
28 “Martha Stewart will pay $195K to settle civil insider trading charges with SEC,” Associated Press, August 7, 2006.
29 “Stewart convicted on all charges,” CNNMoney.com, March 10, 2004.
30 Indeed, when Lay died before his appeal was decided, he in a sense got his final revenge, since the conviction had to be vacated, as is the ordinary federal practice when a conviction is under appeal at the time the appellant dies.
31 Alexei Barrionuevo & Kurt Eichenwald, “The Enron Case That Almost Wasn’t,” The New York Times, June 4, 2006.
32 Ellen S. Podgor, “Overcriminalization,” Conglomerate: Business, Law, Economics, Society, June 1, 2006, available at http://www.theconglomerate.org/2006/06/overcriminaliza. html.
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