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Ohio Attorney General Sues Pharmaceutical Companies Over Opioid Marketing - Yet Another Sign of Government Focus on Recovering Financial Cost of Opioid Epidemic

Last week, Ohio Attorney General Mike DeWine filed a lawsuit against multiple pharmaceutical companies, including Purdue, Teva, Johnson & Johnson, and Janssen.  The suit alleges that, beginning in the late 1990’s, the companies disseminated false information about the risks and benefits of long-term opioid use through million dollar marketing schemes intended to de-stigmatize opioids and increase their use for chronic pain. 

The complaint describes direct marketing campaigns targeting doctors, as well as reliance on prestigious physicians in the pain management field and front groups—who held themselves out as independent patient advocacy organizations, yet received almost all of their funding from pharmaceutical industry sources—to spread misinformation and to make false statements that the CDC and the FDA had proven to be untrue.  One example of the alleged misinformation was the assertion that opioid users showing signs of addiction, like requesting drugs by name, manipulative behavior, seeing more than one doctor to obtain opioids, and hoarding, were actually being undertreated and should be prescribed higher dosages of opioids.  According to the complaint, pharmaceutical companies and the doctors associated with them referred to this phenomenon as “pseudoaddiction,” and falsely claimed that it was supported by scientific evidence.  This deceptive marketing, the Ohio AG claims, caused Ohio doctors to overprescribe opioids for chronic pain conditions, directly resulting in the dramatic increase in opioid addiction, overdose, and death.

The financial burden associated with the opioid epidemic in Ohio, and across the nation, has been astronomical.  Costs include the more obvious expenses, like the costs of the prescriptions themselves, and for treatment and counseling that are paid for by government health programs.  The epidemic carries extremely costly collateral consequences as well, including higher expenditures relating to unemployment, the increased need for child protection services, and medical care for babies born with opioid addiction.  For example, the Ohio complaint alleges that the state spends an estimated $45 million per year for placement costs of children in custody because their parents abuse opiates, and that Ohio’s child protection agencies experienced a nine percent increase in the number of children in foster care between 2011 and 2015.

Ohio is not the first state hit hard by the opioid epidemic to sue pharmaceutical companies.  West Virginia, which has the highest rate of fatal opioid overdoses in the country, reached a $36 million settlement in January related to a 2012 lawsuit alleging that drug companies knowingly sold millions of pills to pharmacies that distributed the medication without proper oversight and inundated the state with painkillers.  Mississippi has also filed a similar lawsuit, as have counties in Illinois, New York, and California; the cities of Everett, Washington, and Chicago, Illinois; and the Cherokee Nation.  These states and local municipalities hope to use litigation to recover costs associated with rampant opioid abuse from the pharmaceutical industry. 

The Ohio complaint states causes of action under Ohio’s Product Liability Act, the public nuisance law, the Ohio Consumer Sales Practices Act, Medicaid Fraud, and common law fraud.  Several of the defendants are also named in a cause of action under the Ohio Corrupt Practice Act, akin to a federal RICO claim.  Among other relief, Ohio demands damages for the funds paid by its Department of Medicaid and Bureau of Workers’ Compensation for excessive opioid prescriptions as well as restitution for Ohio consumers who paid for excessive prescriptions of opioids for chronic pain.

As the opioid epidemic continues, pharmaceutical companies and their individual executives, as well as sales and marketing staff, could face criminal charges if evidence shows that they intentionally lied about the safety of their products.  In 2007 for example, Purdue Pharma, the maker of painkiller OxyContin, pleaded guilty to criminal charges alleging that it misled regulators, doctors and patients about the risk of becoming addicted to the drug.  Three of the company’s top executives also pleaded guilty individually to related charges.  It is possible that the recent civil litigation against pharmaceutical companies could spawn similar criminal investigations.

Doctors who prescribe painkillers, as well as the pharmacies that distribute them, are also likely to continue to face increased scrutiny as the federal and state governments struggle to control the opioid crisis.  A review of Department of Justice press releases found that, so far this year at least 26 medical professionals have already been convicted, charged or sentenced in federal courts in Ohio, Pennsylvania, and West Virginia for offenses relating to unlawful distribution of prescription drugs. 

The epidemic could also be leading to increased oversight of government funded treatment facilities and anti-drug programs to ensure that such entities comply with regulations and do not abuse the heightened demand for their services.  For example, the former CEO of a company contracted to provide substance abuse treatment to California students pleaded guilty to federal charges relating to allegations that the company submitted more than $50 million in fraudulent claims for treatment services that it never provided.  Similarly, the New York State Attorney General has also targeted treatment programs in its state, and recently indicted the owners of multiple Medicaid-enrolled drug treatment centers and three-quarter houses in an illegal kickback scheme, which included money laundering and grand larceny charges.  It is likely that similar prosecutions will continue to result from law enforcement efforts to combat opioid abuse and increased national attention on the issue.


A Special Prosecutor - Another Way to Look at it for the Trump Administration

No President, no executive branch member, no cabinet member wants to have a special prosecutor appointed to investigate him, her or them.  However, if the past is prologue, the special prosecutor appointed makes all the difference in the world.  One need go no further than Kenneth Starr, Whitewater, and the entire Clinton investigation, as an example of how far-reaching a special prosecution can be.

Mr. Starr is, and was, a gifted appellate lawyer, appellate judge, academician, and writer.   What he wasn’t was a prosecutor.  Moreover, he had no investigative background of any kind.  Hence, with history as our guide, one sees that it became a prosecution completely out of control at every level. At the end of the day, the President was acquitted by the Senate and the prosecuting party was hurt by the process.  An argument can be made that the country and all three branches of government were hurt as a result of it.

Former FBI Director Robert Mueller is exactly the type of special prosecutor one would want involved in a case to lend credibility and integrity to the end result.  Mr. Mueller served under a Republican administration, and he was confirmed 100 to zero for his tenure to be extended by a Democratic President.  Mr. Mueller is a 72-year old veteran of the United States Marine Corps.  He earned his undergraduate degree from Princeton University, a Master’s degree in International Relations from New York University, and a law degree from the University of Virginia School of Law.  In addition to his tenure at the FBI, Mr. Mueller’s public service has included time as a prosecutor in the U.S. Attorneys’ Offices for the Northern District of California, the District of Massachusetts, and the District of Columbia.  He also served as an Assistant to Attorney General Dick Thornburgh during the late ‘80s and early ‘90s when he oversaw the prosecutions of Manuel Noriega and Gambino crime family boss John Gotti.  He has a reputation for competency, expertise in difficult prosecutions, and, most importantly, absolute discretion.  

Leaks are impossible to stop when an active criminal investigation is occurring in Washington. Everyone who knows Special Prosecutor Mueller believes that if there isn’t anything there, he is not going to proceed.  He is not likely, unless forced by Congress, to issue a scathing or sensational report made up of  yet unproven reports.  He is someone who understands the importance of getting to the bottom of whether something happened or not. 

Frankly, Mr. Mueller’s appointment as Special Prosecutor should provide all involved with a level of comfort that the investigation will be handled efficiently and appropriately.  This should allow the President of the United States to get back to addressing policies important to the American people, knowing that the President’s actions and those of his colleagues will be investigated in an even-handed manner.


Electronic Health Records Vendor to Pay $154.92 Million for FCA Violations

eClinicalWorks, one of the largest electronic health record vendors in the United States, settled FCA violations related to its software, the DOJ announced on May 31.  The FCA suit was a qui tam action filed by a whistleblower in the District of Vermont, alleging that eClinicalWorks misrepresented the capability of its software used to maintain electronic health records (“EHR”).  The company received federal funds provided to EHR vendors like eClinicalWorks to adopt certified technology necessary to the accuracy and security of personal health data.  To receive federal funds, however, an EHR vendor must truthfully certify that its software met these requirements which are established by HHS and verified by an independent certifying agency.

The United States joined the qui tam case through its complaint-in-intervention, alleging that eClinicalWorks concealed from the certifying agency the non-compliant nature of its software and, as a result, falsely obtained its certification.  The government claimed that, for example, the software did not accurately record user actions through its audit function and did not satisfy the data portability requirement to allow the transfer of patient health information from one EHR vendor to another. 

Under the settlement, eClinicalWorks and three of its founders – the CEO, the COO, and the Chief Medical Officer – accepted joint and several liability for the payment of $154.92 million.  Three other employees, one a software developer and the two others, project managers, will each pay $50,000 and $15,000, respectively.  The settlement also includes a corporate integrity agreement with the HHS Office of Inspector General requiring eClinicalWorks to take remedial measures and subject itself to monitoring of its software quality control systems by an oversight agency.  The whistleblower, a software technician, will receive approximately $30 million under the False Claims Act.

The DOJ press release, the United States’ complaint-in-intervention, and the Corporate Integrity Agreement can be found here, here, and here, respectively.


U.S. to Banamex USA: Only 10 Investigations into 18,000 Banking Alerts is Absurd

Last week, the U.S. Department of Justice announced a non-prosecution agreement (“NPA”) between Banamex USA, a California bank with significant operations in Mexico, related to alleged U.S. Bank Secrecy Act (“BSA”) violations.  The government’s investigation, which took place over the past several years, revealed that Banamex USA willfully failed to employ sufficient controls to prevent money laundering and willfully failed to file Suspicious Activity Reports related to questionable banking transactions.  The United States claimed Banamex USA processed over 30 million payments to Mexico worth more than $8.8 billion.  Despite this volume, Banamex USA conducted less than 10 investigations into questionable transactions although its monitoring system issuing over 18,000 alerts from 2010 to 2012.  In the NPA and the associated factual stipulations, Banamex agreed to the violations as well as to the forfeiture of $97 million and other remedial measures.

The NPA follows several years of legal concerns regarding Banamex USA.  Last week’s DOJ press release also referenced the FDIC’s June 2015 assessment of a $140 million penalty for Banamex USA’s failure to implement an effective BSA/AML compliance program.  The combined penalties from the FDA assessment and the recent DOJ forfeiture is roughly $237.44 million.

Also, as covered by White-Collared  in March 2014 (here), $585 million in fraudulent accounts receivable loans made by Banco Nacional de Mexico, Banamex USA’s affiliate in Mexico, led their corporate parent, Citigroup, Inc., to downwardly adjust its 2014 financial results.  Of the $585 million received by the borrower, Oceanografia S.A. de C.V., only $185 million was backed by actual accounts receivables.  The 2014 announcement coincided with Citigroup’s annual filing which – in an ironic turn of events – disclosed that Banamex received subpoenas from the FDIC and DOJ regarding compliance with the U.S. Bank Secrecy Act and other AML requirements.

The link to the DOJ press release and the NPA can be found here and here, respectively.


Second Circuit Applies Abatement Ab Initio to Criminal Fines

Score one for the defendants – at least those who die while their criminal appeals are pending. In United States v. Libous, the U.S. Court of Appeals for the Second Circuit vacated the conviction of the late New York State Senator, Thomas Libous, and ordered a $50,000 criminal fine that he paid to be reimbursed to his estate.

On July 22, 2015, Libous, the Deputy Majority Leader in the New York State Senate, was convicted of making false statements to the FBI during a public corruption investigation about his efforts to secure his son a job at a law firm. He avoided prison time, in part because he had been diagnosed with advanced-stage prostate cancer, and was sentenced to six months’ house arrest and two years’ probation. He was also ordered to pay a fine of $50,000 and a $100 special assessment. In May 2016, after noticing his appeal but before filing an appellate brief in the Second Circuit, Libous passed away. The executrix of Libous’s estate moved to withdraw the appeal, to vacate the underlying judgment of conviction, and for remand to the district court for dismissal of the indictment and entry of an order that the fine and special assessment be remitted to the estate.

Acknowledging the applicability of abatement ab ignitio – a common law doctrine which states that a conviction abates when a defendant dies pending an appeal as of right – the government agreed that Libous should be relieved of the conviction. However, it argued that Libous’s estate was not entitled to the fine or special assessment that Libous paid.

The three-judge panel unanimously ruled in favor of the estate, holding that, as Libous “stands as if he had never been convicted . . . [h]e is no longer a wrongdoer.” The government could not retain a fine extracted for an offense that Libous, given his death while his appeal was pending, was presumed not to have committed.

The panel found support for its ruling in the U.S. Supreme Court’s recent decision in Nelson v. Colorado, 137 S. Ct. 1249 (2017). There, the Court held that the Fourteenth Amendment’s due process clause required the refund of fees, costs, and restitution whenever a reviewing court invalidates a conviction and no retrial will occur. In so holding, the panel rejected the government’s concern that abating the fine, which was levied on Libous while he was alive, would delegitimize the punishment. Per the panel, it was not determining that Libous was wrongly punished, but rather that there was no longer a valid conviction to support the fine.

United States v. Libous stands in contrast to United States v. Schumann, 861 F.2d 1234 (11th Cir. 1988) and United States v. Zizzo, 120 F.3d 1338 (7th Cir. 1997), both of which held that abatement ab ignitio did not apply to fines paid by defendants before their deaths. The Second Circuit panel found those cases unpersuasive because they did not account for the due process underpinnings of the doctrine, and it questioned their vitality in light of the Supreme Court’s decision in Nelson


Not So Fast: The Pennsylvania Supreme Court's Check on Civil Asset Forfeiture

A dialogue has been ongoing in this country regarding the ability of the government to seize property that is alleged to be connected with criminal conduct.  We have all seen forfeiture notices attached to federal indictments, and we have seen District Attorneys and State Attorneys General file civil actions against “bad” property, including cars, homes, cash, and more.  On May 18, 2017, USA Today ran an article entitled “How Police Steal From Citizens,” wherein op-ed contributor Payton Alexander notes that at least 15 states are considering legislation to cut down on civil asset forfeiture, or eliminate it completely.  Here, in Pennsylvania, we might not have to wait for the legislature.

On May 25, 2017, in a lengthy and detailed opinion by Justice Debra Todd, the Pennsylvania Supreme Court struck down the seizure of a 71-year-old disabled grandmother’s home and vehicle by the Philadelphia District Attorney’s Office.  Elizabeth Young was home on bedrest when her son, 50-year-old Donald Graham was arrested for selling marijuana out of the home and car owned by his mom.  Ms. Young unsuccessfully asserted an innocent owner defense at the trial court level in an attempt to save the rowhome in which she lived for the past 40 years. 

The Pennsylvania Supreme Court held that the analysis of a forfeiture action begins with a determination of whether the property is an instrumentality of a crime.  If it is found to be an instrumentality, a proportionality analysis must be undertaken.  The Court explained in great detail a non-exhaustive list of factors to be considered in weighing the value of the property to be seized against the gravity of the crime.  In this particular case, the District Attorney’s Office argued, in part, that Mr. Graham sold drugs out of his mother’s home for years, thus placing neighbors and investigating officers in harm’s way.  The Supreme Court found this analysis to be insufficient and flawed.

Perhaps the issue of greater importance addressed by the Court was that of Ms. Young’s innocent owner defense.  Justice Todd explained that the trial court must identify the circumstances that make it reasonable to infer that the owner of the property had actual knowledge of the criminal conduct in order for the Commonwealth to defeat the innocent owner defense.  The Court noted the difficulty a property owner might have in “proving a negative,” i.e. that she did not have knowledge of the crimes.  The Court added that a home is an “especially significant type of property.”  “The loss of one's home, regardless of its monetary value, not only impacts the owner, but may impact other family members, and one's livelihood. Indeed, the home is where one expects the greatest freedom from governmental intrusion; it not only occupies a special place in our law, but the most exacting process is demanded before the government may seize it.”  The Supreme Court held that the trial court did not sufficiently consider all of the relevant circumstances in evaluating Ms. Young’s evidence proffered in support of her defense.  The case has been remanded.

Pennsylvania is known to be a political swing state and can be viewed as a bellwether on certain important issues.  Only time will tell whether this most recent decision of the Pennsylvania Supreme Court will lead the pack in nationwide reform of civil asset forfeiture.

Commonwealth v. 1997 Chevrolet, et al., can be found on the Court's website here or at 2017 WL 2291733.


Attorney General Announces New DOJ Charging and Sentencing Policy

On May 10, 2017 Attorney General Jeff Sessions issued a memorandum to all federal prosecutors setting out the new administration’s policy on charging and sentencing.  The directive may result in more frequent use of mandatory minimums and longer sentences for offenders.

Under the new policy, federal prosecutors are directed to charge and pursue the “most serious” and readily provable offense, defined as “those that carry the most substantial guidelines sentence, including mandatory minimum sentences.”  The memorandum recognizes that there may be some limited circumstance in which prosecutors find that strict application of the charging policy is not warranted.  In remarks to New York City law enforcement on Friday, May 12, the Attorney General noted that his policy gives prosecutors discretion to avoid sentences that would result in an injustice.  Assistant United States Attorneys must, however, obtain approval to charge less than the most serious offense.

The policy represents a stark reversal of the charging guidelines crafted by the Obama administration, which directed prosecutors not to charge defendants with crimes that carried mandatory minimum sentences under Title 21 based on drug type and quantity where the defendant met certain criteria, including that the defendant’s conduct did not involve violence, trafficking to minors, or serious injury or death.  The reversal of the former administration’s charging guidelines affects prosecutors’ ability to consider the individualized circumstances and characteristics of defendants implicated in drug offenses at the charging stage.

The new memorandum addresses sentencing policy as well.  It requires prosecutors to disclose to the sentencing court all facts that impact the sentencing guidelines or mandatory minimum sentences and to seek a reasonable sentence under the § 3553 factors in all cases. According to the policy, sentences imposed within the guideline range will be considered appropriate in most cases.


Executive Director of Ocean City Housing Authority Pleads Guilty to Embezzling Federal Funds

A recent case in the District of New Jersey, United States v. Alesia Watson, No. 17-05537 (D.N.J.), illustrates the government’s continued efforts against white collar crime. The executive director of the Ocean City, New Jersey Housing Authority (the “OCHA”) pleaded guilty to embezzling federal funds received from the U.S. Department of Housing and Urban Development (“HUD”) and administrated by the OCHA. According to court documents, the executive director used two credit cards to purchase sixty-nine Master Card gift cards during the period of December 2013 through March 2015. The executive director used the gift cards either for personal expenses not associated with the OCHA, or provided the gift cards to family members and friends. The executive director then used federal funds received from HUD and administrated by the OCHA to pay the credit card bills associated with the purchased gift cards. The government estimates the loss was somewhere between $6,500.00 and $15,000.00.

The embezzlement charge carries a maximum sentence of one year in prison and $100,000.00 fine or twice the gain/ loss amount from the offense. Sentencing is set for August 15, 2017.


Second Notice of Appeal Required to Challenge Deferred Restitution Award

The Mandatory Victims Restitution Act, 18 U.S.C. § 3663(a), requires courts to impose restitution as part of the sentence for defendants convicted of certain crimes. But sometimes at sentencing, the amount of restitution to be imposed is not yet known. In such instances, the court may enter a judgment that sets aspects of the punishment, like a term of imprisonment or probation, while deferring the amount of restitution, which is ordered later via an amended judgment.

In Manrique v. United States, the U.S. Supreme Court was presented with the following question: When a defendant appeals from an initial judgment that does not set a restitution amount, is he entitled to appeal the subsequently entered restitution award? By a 6-2 majority (Justice Gorsuch took no part in the decision), the Court held that a defendant endeavoring to appeal a restitution order in a deferred restitution case must file a notice of appeal from that order, i.e., the amended judgment. By failing to file a notice of appeal from the amended judgment, Manrique, who had noticed appeal of the sentence of imprisonment imposed in the initial judgment, forfeited his right to challenge the restitution amount imposed in his case.

Per the Court, under both Federal Rule of Appellate Procedure 3(a)(1) and 18 U.S.C. § 3742(a), which governs criminal appeals, a defendant is required to file a notice of appeal after the district court has decided the issue he wishes to appeal. It thus rejected Manrique’s arguments that (1) there is only one “judgment,” as that term is used in the Federal Rules of Appeals, in a deferred restitution case, and (2) a notice of appeal filed after the initial judgment springs forward to appeal the amended judgment.

In dissent, Justice Ginsburg, whose opinion Justice Sotamoyor joined, expressed concern that the district court had not fulfilled its obligation to notify Manrique of his right to appeal. At sentencing, the court – as it is obligated to do – told Manrique that he had a right to appeal the sentence imposed and must exercise that right within 14 days of entry of judgment. But it did not provide such notice to Manrique when it amended the judgment. Under the circumstances, Justice Ginsburg would have held that the clerk’s dispatch of the amended judgment to the Court of Appeals served as an “adequate substitute” for a second notice of appeal. 


The Future of FCPA Enforcement Under the Trump Administration

In 2015 and 2016, the Securities and Exchange Commission and the Department of Justice racked-up record recoveries under the FCPA in both civil and criminal fines.  It was the largest amount collected in history.  The SEC and the Department of Justice seemed to forge a well-oiled machine when it came to investigating and prosecuting myriad FCPA violations.  Indeed, in 2016 corporate defendants paid a combined $2.48 BILLION to resolve FCPA cases.  As a result of all the regulatory activity coming out of Washington, D.C., the compliance industry beefed up at every level its FCPA compliance efforts.  The question that looms is: How will FCPA matters fare under Attorney General Jeff Sessions and SEC Chair Jay Clayton?

There has never been an executive branch that could boast more per capita net worth or experience in the global marketplace among its members than the one currently assembled.  President Trump and many of his cabinet members have business interests in China, Japan, Russia, Malaysia, India, Korea, and elsewhere that are yet to be completely understood.  The full extent of this involvement will perhaps never be known due to the positions that have been taken with regard to disclosures.  The question becomes whether FCPA prosecutions will wane.  And, if they do, will that dropping number become rather apparent, rather quickly, based on the amount of activity that has occurred in the preceding years under the Obama administration?  The SEC whistleblower program, which is still currently intact, drives tremendous amounts of tips and cases into the mix.  According to public statements, the SEC received over 4,200 tips in fiscal year 2016 alone.  This has clearly changed the prosecutorial landscape.

In a panel appearance in New York City on April 19, 2017 entitled “Annual SEC/DOJ Enforcement 2017 Update,” the public gained insight into the government’s own thoughts on this issue.  Telemachus “Tim” Kasulis, Co-Chief of the Securities and Commodities Task Force of the U.S. Attorney’s Office for the Southern District of New York signaled no slowdown in white collar investigations and prosecutions under the new administration – at least in his office.  Mr. Kasulis has clearly heard the same theories we all have about President Trump focusing more on violent crime than holding corporate America accountable for economic crimes.  Mr. Kasulis said that violent crime and terrorism have been, and will continue to be priorities, but that has been true for many years.  The federal government can prosecute violent crime and economic crime simultaneously.  How the rest of the U.S. Attorneys’ offices will prioritize their time is still unknown, since not a single U.S. Attorney has been appointed by President Trump.

The SEC shows no signs of slowing down, either.  At the very same conference on April 19th, Acting Director of Enforcement for the SEC, Stephanie Avakian, noted that 2016 was a record year for the SEC, with 868 actions filed and $4 billion recovered in disgorgement.  The SEC is relying more on technology and analytics to bring enforcement actions.  Fellow panelist Gary Giampetruzzi of Paul Hastings, LLP opined that FCPA enforcement will continue at a robust pace because there is a backlog of approximately 80 FCPA cases that have already been made public, and there could be more than 100 more already in the pipeline.  He also drew an analogy between the Foreign Corrupt Practices Act and the False Claims Act (“FCA”).  The FCA, in its revised form, has survived at least four changes in administrations – from Republican to Democrat, and back again.  Although many see the FCA as unfriendly to large corporations, enforcement of anti-fraud statutes is one of very few issues with bi-partisan support.  If the FCA has thrived, so too will the FCPA.

In our global economy, with an international businessman at the helm of the Executive Branch, the world is waiting to see how – or if – President Trump will depart from President Obama’s playbook on the FCPA.  Perhaps the answer is that the FCPA will thrive as an enforcement tool not because of President Trump, but because of the momentum it gained in prior administrations.  Only time will tell.