Raman is the acting chief of the Criminal Division at the Department of Justice.

She appeared before the Oversight and Investigations Subcommittee of the House Financial Services Committee.

The title of the hearing — “Who Is Too Big to Fail: Are Large Financial Institutions Immune from Federal Prosecution?”

In a nutshell, the answer is — Yes they are immune from federal prosecution.

But it’s not just them.

It’s the vast majority of major corporate criminals, which now are granted deferred and non prosecution agreements when twenty years ago they were forced to plead guilty.

This sea change in corporate crime practice was ushered in by then Deputy Attorney General Holder in 1999 when he drafted the Principles of Federal Prosecution of Business Organizations. (Holder has been through the revolving door since — over to Covington & Burling to defend the corporations he’s now charged with prosecuting, then back to the Justice Department as Attorney General under President Obama. And no doubt, soon back to Covington.)

Under the subsequent rewrites of the Holder memo, federal prosecutors must now take into consideration the collateral consequences of a criminal prosecution on a major corporation including “whether there is disproportionate harm to shareholders, pension holders, employees, and others not proven personally culpable, as well as impact on the public arising from the prosecution.”

And this, along with the the eight other factors that prosecutors must take into account before prosecuting a corporation tilts the balance away from prosecution and toward deferred and non prosecution agreements.

Raman made it a point to emphasize twice during her testimony that individuals are not given the same consideration.

“For individuals, collateral consequences never enter into the equation,” Raman said.

Why not?

After all, collateral consequences for individuals can be devastating.

According to the American Bar Association Task Force on Collateral Consequences, the individual convict “may be ineligible for many federally-funded health and welfare benefits, food stamps, public housing, and federal educational assistance.”

“His driver’s license may be automatically suspended, and he may no longer qualify for certain employment and professional licenses.  If he is convicted of another crime he may be subject to imprisonment as a repeat offender.  He will not be permitted to enlist in the military, or possess a firearm, or obtain a federal security clearance.  If a citizen, he may lose the right to vote. If not, he becomes immediately deportable.”

And Raman says that federal prosecutors can’t take these into consideration.

But must take the collateral consequences of a corporate conviction into consideration.

Why the difference?

Because the corporate crime lobby has marinated the justice system.

And morphed our criminal justice system from one that was meant to deliver equal justice for all to one where corporate criminals reign supreme.

“You can imagine why, when I see some of the biggest banks in the world, who get a slap on the wrist, for laundering drug money from the drug cartels, and (their executives) are not going to jail” Congresswoman Maxine Waters (D-California) told Raman at the hearing. “And then we have all of these young people getting arrested, some of them not criminal, just stupid, getting involved with small amounts of cocaine. And yet we have some of the richest, most powerful banks in the world laundering drug money from the drug cartels. Why don’t they (the bank executives) go to jail?”

Raman started to answer and Waters cut her off.

“We know what you do,” Waters said. “It’s what you do that we don’t like. What you do is — they get fined. And it’s a cost of doing business.”

The post Collateral Consequences Weighed for Corporations, Not for Individuals appeared first on Corporate Crime Reporter.

An SEC investigation found that an employee at ISS provided a proxy solicitor with material, nonpublic information revealing how more than 100 ISS institutional shareholder advisory clients were voting their proxy ballots.

In exchange for voting information, the proxy solicitor provided the ISS employee with meals, expensive tickets to concerts and sporting events, and an airline ticket.

The breach was made possible in part because ISS lacked sufficient controls over employee access to confidential client vote information, as this employee gathered the data by logging into the ISS voting website from home or work and using his personal e-mail account to communicate details to the proxy solicitor.

The employee no longer works at ISS, the SEC said.

To settle the charges, ISS, which is registered with the SEC as an investment adviser, will pay $300,000 and retain an independent compliance consultant.

ISS was represented by Jim Windels of Davis Polk in New York.

“Proxy advisers must tailor their controls based on the risks of their particular business in order to protect the integrity of the proxy voting process,” said Julie M. Riewe, Deputy Chief of the SEC Enforcement Division’s Asset Management Unit.  “The internal controls at ISS did not adequately address the potential misuse of confidential proxy voting information by firm employees.”

The SEC alleged that ISS failed to establish or enforce written policies and procedures reasonably designed to prevent the misuse of material, nonpublic information by ISS employees.

The SEC said that ISS lacked sufficient controls over employee access to databases of confidential client vote information.

The SEC’s order censures the firm and requires ISS to pay a $300,000 penalty and engage an independent compliance consultant to review its supervisory and compliance policies and procedures.

The consultant will evaluate whether ISS’s procedures are reasonably designed to ensure that its proxy voting services business complies with the Investment Advisers Act in its treatment of confidential information, communications with proxy solicitors, and gifts and entertainment.

Without admitting or denying the SEC’s findings, ISS agreed to cease and desist from committing or causing any future violations of Section 204A.

The post ISS To Pay $300,000 to Settle SEC Charges appeared first on Corporate Crime Reporter.

The failings persisted for two years and were not corrected until the FCA brought them to the firm’s attention in the course of its thematic review into wealth management firms and the suitability of their advice.

“No matter who they are, customers of wealth managers should be able to expect the firm to keep complete, up to date client records so that they can give the right advice,” said Tracey McDermott, FCA director of enforcement and financial crime. “In this case the firm did not have complete records, nor did its management have the information they needed to recognize this.”

“Firms which fail to keep the right records expose their clients to the risk of inappropriate investments and have no way of checking whether their advice has been appropriate.”

The FCA identified a number of issues with JPMIB’s processes and an inability to demonstrate client suitability from its client files.

During this period, JPMIB’s senior management did not have sufficient information and oversight tools to identify and address these deficiencies.

Although no detriment to customers has been identified to date, the failings exposed customers to the risk that they would be given incorrect advice and inappropriate investments.

The FCA found that client files which were not kept up to date or that did not retain important client suitability information (e.g. client objectives, capacity for loss and investment experience).

The FCA also found that a computer-based record system that did not allow sufficient information to be retained;

The FCA also found that suitability reports that failed adequately to contain a statement of the client’s demands and needs, explain why the investment was suitable to meet those needs or indicate any disadvantages of the investment and that  communications to confirm client suitability profiles were not always sent to the client (as required by JPMIB’s own policy).

JPMIB did not ensure that there was adequate risk and compliance monitoring and oversight of its business.

While some issues were identified by monitoring, they were not adequately addressed until after February 2012.

After the FCA identified potential failings at JPMIB, it instructed the firm to appoint a skilled person to conduct an assessment of the adequacy and effectiveness of the firm’s systems and controls. Its report found a number of deficiencies, including most of those set out above.

JPMIB subsequently took prompt action to resolve the issues and improve its systems, including carrying out the skilled person’s recommendations.  It also undertook a significant overhaul of its suitability processes.

The post JP Morgan Fined $4.5 Million appeared first on Corporate Crime Reporter.

Raman held up well under sometimes aggressive questioning about the Department of Justice’s corporate crime prosecution policies.

In defending the Department’s increased use of deferred and non prosecution agreements to settle major corporate crime cases in recent years, Raman said that for deferred and non prosecution agreements “we require a complete admission of wrongdoing.” and that “regardless of the resolution — deferred prosecution, non prosecution or a guilty plea —  the company must fully acknowledge it’s criminal wrongdoing and may not retract that.”

We ran this claim by Brandon Garrett.

Garrett is a Professor at the University of Virginia Law School.

He has set up a database of all publicly available deferred and non prosecution agreements and a separate database of guilty pleas in major corporate crime cases.

And he’s writing a book titled — Too Big to Jail: How Prosecutors Take On Corporations.

“Of the 232 federal deferred and non-prosecution agreements with corporations that I have obtained, from 2001-2012, I found that 88% included an acceptance of responsibility or admissions of guilt, while 12% did not,” Garrett told Corporate Crime Reporter.  

“Somewhat fewer agreements —  80% — included a more detailed statement of facts describing the conduct.”

“So, it is a good thing that the vast majority of these corporate prosecution agreements do include acceptance of responsibility and admissions of guilt. Many explain that those corporate admissions and the acceptance were a reason for granting leniency.”

But Garrett said that in about one-fifth of the cases, the admissions are not made in any detail in a public document.

And there are cases where the Department refuses to make public the deferred or non prosecution agreement.

Last week, for example, the Department announced a non prosecution agreement with C.R. Bard, quoted from the agreement in its press release, but then refused to release the actual agreement.

And there are the cases — 12% of them — in which there is no acceptance or responsibility or admission of guilt, Garrett said.

“Some include quite significant corporate prosecutions,” Garrett said. “Sometimes there is a brief explanation.”

Garrett said that the Elan Corporation agreement notes — “this Agreement is made in compromise of disputed claims,” and states that the firm did not admit guilt.

“In most cases in which there is no admission, it is inexplicable why companies are not required to admit guilt or accept responsibility,” Garrett said.

“The fact that some companies are not required to admit guilt in these criminal settlements is troubling, but perhaps if the Department of Justice has changed its policies and such agreements will become a thing of the past.”

Garrett said “there is the concern that the public admissions be complete and involve a true acceptance of responsibility.”

“Some cases avoid describing the crime in much detail, as I have noted,” he said.

“Some cases avoid naming the particular crimes committed. The Barclays agreement from last year is an important example.”

The post Raman Defends Deferred and Non Prosecution Agreements for Major Corporate Crime Cases appeared first on Corporate Crime Reporter.

Then he wasn’t.

Deputy Attorney General James Cole was scheduled to testify tomorrow before the House Financial Services’ Oversight and Investigations Committee.

The title of the hearing — “Who Is Too Big to Fail: Are Large Financial Institutions Immune from Federal Prosecution?”

A subcommittee spokesperson told Corporate Crime Reporter that on April 27, Cole was invited to testify.

“We were not informed by the Department of Justice until Friday, May 17 – three business days before the hearing is scheduled – that Cole would not be available to testify,” the spokesperson said.

“You’ll hear the subcommittee chairman, Congressman Patrick McHenry, talk about this tomorrow at the hearing,” the spokesperson said.

“Since Department of Justice has told us Cole is unavailable, we will have Mythili Raman, Acting Assistant Attorney General, testifying instead.”

Attorney General Eric Holder has said that the Justice Department relies on “outside experts” when assessing the economic harm that might result if it prosecutes large financial institutions, and that the Justice Department’s assessment of that harm has inhibited it from prosecuting such institutions.

But in a memo dated May 17, the subcommittee staff reported that it had been “unable to find evidence that the Justice Department has received any material information from ‘outside experts’ when making prosecutorial decisions in cases involving large financial institutions.”

And in a Thursday, May 16th letter responding to a request that the Committee made over a month earlier, the Justice Department said that ‘we are not currently aware . . . of any consultations with private, non-governmental third party entities on the potential collateral consequences of prosecutorial actions the Department might take with respect to any large, complex financial institutions” and that the Department has from time to time “contacted relevant

government agencies to discuss such issues,” including domestic and foreign regulators.

But the Subcommittee determined that the Treasury Department did not offer advice to the Justice Department in at least one prominent matter involving HSBC Holdings plc and HSBC Bank USA,, because the Treasury Department “did not conduct any economic analysis” regarding the potential prosecution of those entities.

The Subcommittee staff also found that the Justice Department did not receive any analyses from the Financial Stability Oversight Council (FSOC) or the Office of Financial Research (OFR) about the HSBC matter, even though the Dodd-Frank Act charges these  agencies with assessing risks to the financial system and coordinating among federal regulators.

The Subcommittee also determined that the Justice Department did not receive analyses from the OCC or the Federal Reserve regarding the economic effect of prosecuting HSBC, although the Justice Department did consult them on other matters relating to HSBC.

The hearing will examine the appropriateness and adequacy of the Justice Department’s opinions about the collateral consequences of prosecuting large financial institutions, the Justice Department’s ability to assess the economic consequences of such prosecutions, and whether an institution’s “Too Big to Fail” status has prevented the Justice Department from appropriately resolving criminal matters.

Dennis Kelleher of the public interest group Better Markets told Corporate Crime Reporter that “nothing is more fundamental to America than equal justice before the law.”

“There cannot be a double standard where the law applies to everyone except Wall Street’s too-big-to-fail banks,” Kelleher said.  “If the Department of Justice is to be worthy of its name, it has to start prosecuting the high crime area of Wall Street. Statements and pronouncements by the Attorney General or anyone else are meaningless. Only concrete action that holds Wall Street accountable before the court of law will prove that there is no such thing as too-big-to-jail.”

The post Cole Out, Raman In for House Hearing on Too Big to Fail appeared first on Corporate Crime Reporter.

Davis alleged the company U.S. Renal Care acquired, Dialysis Corporation of America (DCA), overcharged Medicare for years for the  anemia drug Epogen — used to treat dialysis patients.

Davis’ lawsuit alleged that DCA was billing Medicare and other government healthcare programs for more Epogen than was actually used.

Davis was represented by Stephen Hasegawa, a partner at Phillips & Cohen in San Francisco.

The company was represented by Stuart Kurlander and Abid Qureshi of Latham & Watkins in Washington, D.C.

Davis will receive $1.3 million as her part of the settlement.

The Department of Justice investigated the allegations and joined the lawsuit.

The lawsuit was filed under seal in 2008 and not made public until today.

Epogen is used to increase the red blood cell counts of kidney dialysis patients, many of whom are anemic.

It is packaged in small vials.

To administer the drug, healthcare staff withdraw Epogen from the vials using syringes and inject it into patients’ blood during the dialysis process.

When a drug in liquid form is packaged in a vial for withdrawal with a syringe, a small volume of the drug typically adheres to the inside of the packaging, making it impossible to withdraw the full amount of the drug from the vial with standard syringes.

To ensure that providers can withdraw the purchased amount of the drug from the vial, the manufacturer, Amgen, fills the vials with approximately 11 percent more Epogen than is stated on the label.

That extra 11 percent is called “overfill.”

The manufacturer doesn’t charge extra for the overfill because it can’t be recovered using standard syringes, so the overfill is thrown away along with the vials.

DCA allegedly billed Medicare for not just the Epogen the patients received but also for the overfill that remained in the vials, even though DCA used standard syringes and did nothing to ensure that it was actually withdrawing and administering any overfill.

At one point, reimbursement for Epogen use accounted for more than 25 percent of DCA’s medical-services revenue.

“Since the patients didn’t receive the overfill, DCA shouldn’t have billed Medicare for that amount,” said Stephen S. Hasegawa, a whistleblower attorney with Phillips & Cohen LLP, which represents the whistleblower.

Davis filed the qui tam lawsuit in 2008 in federal district court in Baltimore, Maryland.

Davis is a registered nurse who worked at one of DCA’s dialysis centers in Georgia.

DCA operated more than 35 outpatient dialysis facilities and was acquired by U.S. Renal Care in 2010.

“Laura Davis raised concerns about DCA’s billing practices for Epogen internally, but no one listened to her,” Hasegawa said. “They thought she was a little strange to care that the government was being overcharged. She is very glad that the government cared and has recovered these overcharges for taxpayers.”

Hasegawa praised the government attorneys who worked on the case, particularly Roann Nichols, assistant U.S. attorney for the District of Maryland, and Arthur Di Dio, trial attorney for the U.S. Department of Justice.

“Roann Nichols and Arthur Di Dio did excellent work,” Hasegawa said. “This case shows how taxpayers benefit when government attorneys work closely with whistleblowers and their lawyers to stop fraud and recover government funds.”

The post U.S. Renal Care Will Pay $7.3 Million to Settle False Claims Charge appeared first on Corporate Crime Reporter.

Not very.

Laura Gottesdiener has written a remarkable book that hits hard against the big Wall Street banks.

It’s called – A Dream Foreclosed: Black America and the Fight for a Place to Call Home (Zuccotti Park Press, August 2013).

At base, it’s a book about corporate crime.

Remember redlining?

Thirty years ago, banks were drawing imaginary red lines around inner city neighborhoods.

The banks refused to give mortgages to people living in those neighborhoods.

“For decades, the federal government and banks refused to lend in these communities,” Gottesdiener told Corporate Crime Reporter in an interview last week. “Finally, when these communities were completely starved for mortgages, they broke it open and pushed the most ridiculous and predatory mortgages they could come up with. And of course, people bought them because it was the first time that mortgages were ever being guaranteed by the government and by big mainstream banks in those communities.”

When did that switch over – from redlining to reverse redlining?

“In the early to mid 1990s,” Gottesdiener said. “And later that was really pushed aggressively by the Bush administration. President Bush gave this nice speech at the 2002 Minority Council on Homeownership. He was saying that banks and the federal government were going to start aggressively lending to minorities.”

“The mortgage market for white Americans was flush. There was no more money to be made from issuing mortgages to white Americans. I think the mortgage rate for white Americans hit 70 to 80 percent in the early 1990s. You started to see that almost any American who could have a mortgage and wanted to have a mortgage would have a mortgage. There was no market there.”

“The banks needed new consumers. So, they moved into the minority market. But they weren’t selling the conventional loans. They were selling these incredibly exploitative predatory loans.”

“When you had redlined neighborhoods, there were mortgages. But you had loan sharks pushing them. They would buy mortgages and peddle them in minority neighborhoods with these terribly marked up fees — crazy late fees, ballooning payments. If you miss one payment, your house gets repossessed. They were these incredibly onerous contracts.”

“You see pretty clear parallels between the predatory mortgages that were issued in the late 1990s and early 2000s by the major banks — by the Wall Street top banks — and what you were seeing the loan sharks pushing in these neighborhoods the 1960s and 1970s. They are very similar contracts.”

So the big banks became the loan sharks. But they were never criminally prosecuted?

“Exactly,” Gottesdiener said. “And that became the new normal.”

“My book is about African Americans in the foreclosure crisis. But more white Americans have been foreclosed on. You start to see the types of contracts that would never have been imposed on white Americans, did go mainstream. And you started to see them being pushed in nice white suburban communities as well.”

What’s one of the most egregious mortgages you came across?

“There are loans called interest only negative amortizing adjustable rate loans,” Gottesdiener says.

“If you break it down it means you are only paying the interest on your loan. You are never paying your loan off. Negative amortization means that instead of getting smaller, it gets larger. And adjustable rate means the amount of interest can rise and fall.”

“What that means in a practical sense is that you could be paying your mortgage for 20 or 30 years and one day realize that at the end of that time you owe more on your mortgage than the original loan amount.”

Gottesdiener says there have been 4.8 million completed foreclosures since the crisis began in 2007.

“Those are homeowners and families who have been evicted from their homes,” she said. “There is not a good count on how many people are involved.”

“No government agency feels the responsibility to track that information. The statistics on that are incredibly spotty.”

“They often rent. Sometimes they will look for a new house to take out a mortgage on. Sometimes they become homeless. A lot of times, they will have a transition where they will live with family or friends, or temporarily live in a homeless shelter. And then they might get on their feet and start renting.”

Out of the 4.8 million, a handful fight back and refuse to leave.

“There might be hundreds, maybe thousands,” Gottesdiener says. “The success rate varies.”

“There is a group called City Life/Vida Urbana. They are an anti-foreclosure group in Boston. They have an incredible success rate. They have staged more than 30 foreclosure blockades. They have been successful at almost every single one of them.”

“That’s an example of an established community organization that has been in the community for over 30 years. It has a large support network. And they ask members to sit in the homes, but also to bring out neighbors and others. City Life brings out its people. And they have a mass of people that creates a blockade.”

And the bank just turns over the house?

“Not always,” she says. “You will often see a back and forth.”

“One example in my book is that of Bertha Garrett. She did this at her home and ultimately won her house back.”

“When there is a blockade, the media comes into play. If the media starts to pick up on the story, it starts to become a local phenomenon. And pressure builds on the bank at a national level. And the bank is forced to deal with the situation to get the bank out of the news and out of the limelight.”

“Wells Fargo and Bank of America or these other big banks, they don’t want the negative media attention.

After one blockade or a few blockades, the banks will usually just leave the house alone.”

“When there is a well established housing organization coordinating the blockade, you will usually see a specific demand attached. You will see — this family needs a loan modification for this amount, then they can pay. And we can help them pay.”

“Bertha Garrett’s house had been sold at the sheriff’s sale for $10,000. Her ask was — I actually just want to buy my house back. That felt fair to her. It was what the bank had just paid to buy it back.”

“She was in Detroit, because housing prices had tanked.”

“In a place like Boston, you will often get a loan modification. In a place like Detroit or the South Side of Chicago, usually they will renegotiate the sale of the home, or sometimes just leave it in foreclosed status.”

“If just one person wants to stay in their house and they are not necessarily connected to the broader community or a housing organization, or a demand that feels intelligible to the bank — if they just barricade themselves in their homes, the situation can and has ended up quite violently.”

“And people have been shot and died. These are not necessarily incalcitrant people sitting in their homes waiting to see what will happen. It’s part of an overall strategy to make it apparent that the banks contracts are not immutable, that there is a possibility that homeowners and everyday people can renegotiate their contracts in the same way that banks, and major financial institutions and governments do all the time.”

“The big banks were pushing a bigger scheme. On one hand they were pushing predatory loans that many people knew were never going to be paid back. And it didn’t matter to the big banks, because of securitization process.”

“The banks, under the securitization process, could sell the loan off and receive the money pretty much immediately. It didn’t matter to the big banks if that loan ever got repaid.”

“There is clear cut fraudster behavior. And then there is broad collective fraudster behavior of the big banks. The broad collective fraudster behavior of the big banks was that they knew housing prices couldn’t go up forever. And yet they created a system and perpetuated it and sold it into infinity. And in that system, housing prices would have to go up forever. They knew it was a house of cards.”

(For complete q/a format Interview with Laura Gottesdiener, see 27 Corporate Crime Reporter 20(12), May 21, 2013, print edition only.)

The post A Dream Foreclosed appeared first on Corporate Crime Reporter.

In response to Jenner & Block partner Anthony Barkow, McInerney said that the Justice Department has moved from the “black box” days pre-1999 Holder Memo (Principles of Federal Prosecution of Business Organizations) to the current period of increased transparency.

“Transparency is important,” McInerney said. “The Department has done a lot to help be as transparent as possible. It started with the Holder Memo in 1999. Before that it was a bit of a black box.”

McInerney said that deferred and non prosecution agreements contain both a relevant considerations paragraph and statement of facts.

“We have a pretty healthy paragraph that maybe goes on for a page or two pages or more that just lays out the relevant considerations for the disposition,” McInerney said. “It’s the relevant considerations paragraph. We have very detailed statements of facts that are attached to all of our agreements now. Those statement of facts give you a very good sense of what the conduct was that resulted in this disposition.”

“The combination of that statement of facts with the relevant considerations paragraph tells you — okay, this is what the conduct was, this is what the response was to the conduct by the company and this is the disposition that the Department concluded was the appropriate disposition.”

Very good, Denis.

But what happens when the Department of Justice refuses to release the agreement to the public?

Take the case of C.R. Bard.

The company was represented by Christopher Wray of King & Spalding in Washington and John Dodds of Morgan Lewis & Bockius in Philadelphia.

The Justice Department put out a press release earlier this week announcing the disposition of the Bard case.

There was both a criminal settlement and a civil settlement.

Under the civil agreement, Bard will pay $48.2 million to settle a whistleblower lawsuit that alleges its urological division and wholly owned subsidiary, ProSeed Inc., paid doctors and hospitals kickbacks to entice them to order Bard’s products at inflated prices to treat Medicare patients with prostate cancer.

The Department settled the criminal case with a non prosecution agreement.

The Department says in its press release that, “according to a non-prosecution agreement with the United States, Bard has agreed to pay an additional $2.2 million and to take numerous remedial steps, many of which the company identified and began to implement prior to the criminal investigation, to enhance its corporate compliance program to prevent similar illegal actions in the future.”

When we asked the U.S. Attorney in Atlanta, Georgia for a copy of the non prosecution agreement, we were told — no.

“My apologies — we will not be able to release the NPA,” Bob Page of the U.S. Attorney’s office wrote to Corporate Crime Reporter.

At the Justice Department, Allison Price wrote that the U.S. Attorney in Atlanta is handling it.

So, Denis, what good is all that information in the non prosecution agreement if we can’t see it?

We’d like to see the relevant considerations paragraph.

After all, one of those “considerations” or “factors” prosecutors may consider is the corporation’s past history.

“Prosecutors may consider a corporation’s history of similar conduct, including prior criminal, civil, and regulatory enforcement actions against it, in determining whether to bring criminal charges and how best to resolve cases,” the memo reads.

Bard has a long history of corporate wrongdoing, including pleading guilty in 1993 to selling defective heart catheters, concealing problems with the devices from the Food and Drug Administration and illegally experimenting on people.

Did the prosecutors in this case consider that relevant?

“I hope they have a very good reason (not to release the non prosecution agreement) but it is hard to imagine what that could be since they readily described the settlement in a press release,” Professor Brandon Garrett of the University of Virginia Law School told Corporate Crime Reporter.

Garrett is writing a book titled Too Big to Jail about the corporate crime.

He has created a comprehensive database of corporate criminal pleas and a separate one of public deferred and non prosecution agreements.

“I have been very disturbed to learn that there are a number if corporate prosecution agreements that federal prosecutors have kept under wraps,” Garrett said. “I have yet to hear convincing explanations for why that was done in those cases. And it is deeply troubling that cases of public importance are being kept secret — apparently not because a judge placed a case under seal, but because prosecutors did so.”

Garrett said that the First Amendment Clinic at the University of Virginia Law School plans to pursue Freedom of Information requests to obtain all such corporate prosecution agreements.

“The public should know what the terms of these agreements are,” Garrett said.  “Any sensitive material can be redacted. I think in fact that far more than just the agreements should be routinely made public — so should progress reports from corporate monitors.”

The post Justice Department Refuses to Release C.R. Bard Non Prosecution Agreement appeared first on Corporate Crime Reporter.

Are monitor picks the result of an inside the beltway good old boy network?

And why doesn’t the Department of Justice make the names of monitors public?

These were some of the issues raised a panel on corporate monitors at the Corporate Crime Reporter Conference earlier this month at the National Press Club.

Participating on the panel were Dan Newcomb of Shearman & Sterling, George Stamboulidis of Baker Hostetler, Gil Soffer of Katten Muchin, Joseph Warin of Gibson Dunn, and John Buretta, chief of staff of the Criminal Division at the Department.

The panel was moderated by Shirah Neiman of SN Compliance.

Neiman questioned why the Department has adopted a policy of letting the corporation propose three names to be the monitor.

“It’s my understanding that the Department of Justice — at least the Criminal Division —  has opted to follow a practice where the Department allows the company to propose the names of three or more candidates for the monitorship and the Department will then select from among those candidates,” Neiman said.

“If those don’t pan out and the Department rejects them, then the company comes up with more names. But it appears to be a practice where the Department does not propose it’s own names.”

Neiman asked Buretta — “Is there such a policy, when was it adopted?”

“The practice varies from case to case,” Buretta said. “Ordinarily the agreements provide that there will be three submitted from the company, which does reflect some practicalities.”

“The company will be in a position to identify conflict concerns as to the company and any potential prior engagement by a prospective monitor. They will have a sense of the industry and who some of the experts are in the industry.”

“What happens from there does vary quite a bit,” Buretta said. “Sometimes we find all three would be great candidates. Sometimes one, sometimes none. And we go back to the company for a variety of reasons, either because the person who is proposed doesn’t have the background or expertise for this particular misconduct issue that was the subject of the resolution or because there is some appearance or other issue with respect to that person’s either involvement with the company or matters with the company.”

“One important component is to make sure we are making a selection that we feel comfortable with from an ethical issue,” he said.

Neiman said that when she inquired about the HSBC money laundering case — “how the monitor as being selected, the answer was — we are following the practice in the Department of Justice to let the company propose several names and then we will pick from among those names or do so until the company comes up with a name that is acceptable to us.”

“And that is different from what the Morford Memo says — which is that the government can be very flexible, including that the government can select the monitor,” Neiman said.

“And I know in the Southern District of New York, where I came from, they consider anywhere from 3 to 12 names. they will consider what the company proposes, but they do the selecting. They chose the monitor and it may not be from among the names that the company proposes.”

“To me, it’s certainly seems, as a long standing former prosecutor, that allowing the defendant in some serious criminal cases to pick their own monitor does not always make sense.”

“And the Department should scout around and select from its vast experience, monitors that they believe will do the best job and not leave it to the company to select,” Neiman said.

Warin said he disagreed with Neiman on this point.

“These are very calibrated selection processes in Main Justice in my experience,” Warin said. “From a company’s perspective, it is not inviting your in laws in for a long weekend — it’s inviting your in laws in for three years. I have great in laws, but you might not want them there for three years. So you might want to understand the nature of that relationship and is it going to be effective or not.”

“Giving some deference to the company to say — I like this person, but I just don’t know that we have the right chemistry — it has nothing to do with — they are going to take a dive for the corporation or not, or they are not going to be independent or not.” Soffer said that a few years ago, the Government Accountability Office did a study of DPAs NPAs and monitorships.

“They look at about twelve they selected randomly, in which the corporation had selected the monitor and presented in the first instance the choices,” Soffer said.

“And in every instance, the Department of Justice had reported satisfaction with the selection.”

Soffer said that he was not aware of any instance in which “the Department of Justice has said this system is broken because the corporation had selected a patsy.”

“I just don’t think it has happened,” Soffer said.

Newcomb said that “the Department of Justice doesn’t always agree with the company’s selection.”

“I had a very painful experience where the general counsel of my client had three great candidates because they all went to school together,” Newcomb related.

“They sat next to each other in law school. I said — those folks won’t fly and I was right. Not that we didn’t try to sell them. They were in each case quite distinguished lawyers, quite celebrated lawyers, but they weren’t particularly technocrats in the subject matter. And the Department ended up putting a technocrat in.”

Buretta said that “there shouldn’t be any misimpression left that we don’t heavily scrutinize the candidates wherever they arise from.”

“It is a very intensive process that involves not infrequently multiple interviews of multiple candidates that are pretty lengthy interviews in which we ask a lot of questions,” Buretta said.

“We often ask pretty detailed presentations about their game plan, their outlook on how they would approach them, we vet them for any prior interactions with the company. And not infrequently —  and I’ve seen this personally — we reject candidates for one reason or another, and that’s just the first level of scrutiny that occurs.”

Neiman then raised the cronyism issue.

“I don’t know of exceptions to the ‘let the company pick’ policy,” Neiman said. “The argument has been made that when Main Justice allows the company to pick three names, essentially you are enabling former Main Justice employees who represent the clients to select their former colleagues.”

“So, you are sort of removing it from the Department of Justice — to be involved in cronyism — but you are sort of allowing former Department of Justice employees to select three names, including other former Department employees. My question is — is there anything to this problem?”

Newcomb said “there are two monitors I am familiar with — myself and my partner — neither of whom are in Washington.”

“So, there at least some examples that go the other way,” Newcomb said.

Warin said — “I guess I’m the Washington lawyer who answers the question, huh?”

“I’ve always thought the cronyism issue is a false God,” Warin said.

“What John says about scrutiny — it’s absolutely true. The candidates get bios, they have face to face interviews, occasionally they are asked for follow up questions and asked to make written submissions. There is no hometowning the process, in my experience. And I’ve been involved with monitors on every side of the prism. I’ve been a monitor. I’ve helped select monitors for companies. I’ve done it in the FCPA space. I’ve done it in a whole range of other topics and areas.”

“And I find it frankly insulting to the Department of Justice by people who make that allegation that they are not doing their job. They are doing their job splendidly in my view in this space.”

“And you can imagine if you are a former prosecutor. They don’t just phone it in in any respect. That just doesn’t happen. It’s a complete fallacy in my judgment.”

“The issue is not that they wouldn’t be good monitors,” Neiman said.

“It also undersells where companies are,” Warin said. “Most companies want to be in the posture to say — if we are going to have a monitor, we want this to be value added to the organization, that enhances the organization. And they also have a posture — never again. We don’t want to go through the experience that put us at loggerheads with the Department of Justice ever again. So, let’s get it right.”

“Some people think all companies don’t want to have monitors. But there are actually different stakeholders in companies that have different perspectives on that. Some people in the business say — maybe a monitor might be good for a period of time.”

Soffer agreed with Neiman that most monitors come from Main Justice.

“If we had the numbers in front of us, we would find that most monitors have been at one time at the Department of Justice or the SEC — most mostly the Department — I think that’s how the numbers shake out,” Soffer said.

“But no matter what selection process you chose, that is likely to be the outcome because companies would want to go people who are known quantities, who are respected by their peers, by the government, and who also have a track record of working on internal investigations and complicated ones and interfacing with the government,” Soffer said.

“That tends to be former attorneys with the DOJ and SEC and other entities. So, there will be that natural inclination to select people of that ilk. But that will be a product of any selection process, it seems to me, except one that unfairly excludes people who have the most talent and ability to do the work.”

Buretta said that “if I think back over the last year on the selections of the standing committee in the Criminal Division, many of them are just not former DOJ folks.”

“There is an increasing focus on folks who are familiar with the industry or who have experience beyond just being lawyers,” Buretta said. “A lot of the monitors being selected now come from consultant and forensic firms or folks who are expert on a particular industry. I’ve seen that in the healthcare sphere. There are cases where the selection is between a former DOJ person and someone who really knows this industry, has no ethical conflict of any kind and has a full staff of people capable of doing the monitorships. And those folks on occasion are getting monitorships. I can’t speak to ten or five years ago, but certainly today, I don’t see that phenomenon at all.”

Neiman then raised the issue of why the Department of Justice doesn’t make the names of all monitors public.

“I had an experience when I wanted to know who was selected as a monitor after the fact,” Neiman related.

“And the Department of Justice often puts on its website a press release when they announce a DPA or NPA or a prosecution. But the monitor isn’t yet selected. If they are not going to issue a press release when the monitor is selected, there is nothing in the public record about who is the monitor. When I asked Denis (McInerney) if there was a list and if I could have it, he said yes there is a list and no I couldn’t have it.”

“Can people get that list?” Neiman asked Buretta.

“Shouldn’t it be transparent? And if not, will the Department agree to post who the monitor is in all cases it is involved with so that you can go on the web site and see who ultimately became the monitor?”

Buretta said that “the only way I could fairly answer that question is to point to the necessity of the independence of the monitor.”

“Usually, the monitorship agreements have a provision in them that says this person is not an employee of the Department of Justice nor of the defendant company,” Buretta said. “In light of that need for independence, you can see why putting out there prominently who the selection is could cut against the concept of independence and the fact that they are not our agent or the defendant’s agent.”

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Ranbaxy will pay a criminal fine and forfeiture totaling $150 million and to settle civil claims under the False Claims Act and related state laws for $350 million.

The whistleblower, Dinesh Thakur, a former Ranbaxy executive, will receive approximately $48.6 million from the federal share of the settlement amount.

Thakur was represented by Andrew Beato of Stein Mitchell in Washington, D.C.

The company was represented by Warren Hamel, Geoffrey Garinther and Winifred Weitsen of Venable in Washington, D.C.

The federal Food, Drug and Cosmetic Act (FDCA) prohibits the introduction or delivery for introduction into interstate commerce of any drug that is adulterated.

Under the FDCA, a drug is adulterated if the methods used in, or the facilities or controls used for, its manufacturing, processing, packing, or holding do not conform to, or are not operated or administered in conformity with, current Good Manufacturing Practice (cGMP) regulations.

This assures that a drug meets the requirements as to safety and has the identity and strength, and meets the quality and purity characteristics, which the drug purports or is represented to possess.

Ranbaxy USA pled guilty to three felony FDCA counts, and four felony counts of knowingly making material false statements to the FDA.

The generic drugs at issue were manufactured at Ranbaxy’s facilities in Paonta Sahib and Dewas, India.  Under the plea agreement, the company will pay a criminal fine of $130 million, and forfeit an additional $20 million.

Ranbaxy USA admitted to introducing into interstate commerce certain batches of adulterated drugs that were produced at Paonta Sahib in 2005 and 2006, including Sotret, gabapentin, and ciprofloxacin.

Sotret is Ranbaxy’s branded generic form of isotretinoin, a drug used to treat severe recalcitrant nodular acne; gabapentin is a drug used to treat epilepsy and nerve pain; ciprofloxacin is a broad-spectrum antibiotic.

Ranbaxy USA acknowledged that FDA’s inspection of the Paonta Sahib facility in 2006 found incomplete testing records and an inadequate program to assess the stability characteristics of drugs.

“Stability” refers to how the quality of a drug varies with time under the influence of a variety of factors, such as temperature, humidity, and light.

Such testing is used to determine appropriate storage conditions and expiration dates for the drug, as well as to detect any impurities in the drug.

Ranbaxy also acknowledged that the FDA’s 2006 and 2008 inspections of the Dewas facility found the same issues with incomplete testing records and an inadequate stability program, as well as significant cGMP deviations in the manufacture of certain active pharmaceutical ingredients and finished products.

Ranbaxy USA also acknowledged that in 2003 and 2005 the company was informed of cGMP violations by consultants it hired to conduct audits at the Paonta Sahib and Dewas facilities.

Those cGMP violations resulted in the introduction into interstate commerce of some adulterated drugs.

Ranbaxy USA further also admitted to failing to timely file required reports known to FDA as “field alerts” for batches of Sotret and gabapentin that had failed certain tests.

With respect to Sotret, Ranbaxy USA was aware in January 2003 that a batch of Sotret failed an accelerated dissolution stability test but continued to distribute the batch into the United States for another 13 months.

With respect to gabapentin, Ranbaxy USA was aware at various times between June and August 2007 that certain batches of gabapentin were testing out-of-specification, had unknown impurities, and would not maintain their expected shelf life. But Ranbaxy USA did not notify FDA and institute a voluntary recall until October 2007.

Ranbaxy USA also admitted to making false, fictitious, and fraudulent statements to the FDA in Annual Reports filed in 2006 and 2007 regarding the dates of stability tests conducted on certain batches of Cefaclor, Cefadroxil, Amoxicillin, and Amoxicillin and Clavulanate Potassium, which were manufactured at the Dewas facility.

Ranbaxy USA was found to have conducted stability testing of certain batches of these drugs weeks or months after the dates reported to FDA.

In addition, instead of conducting some of the stability tests at prescribed intervals months apart, the tests were conducted on the same day or within a few days of each other.  This practice resulted in unreliable test results regarding the shelf life of the drugs.

Ranbaxy USA also acknowledged that drug samples waiting to be tested were stored for unknown periods of time in a refrigerator, which did not meet specified temperature and humidity ranges for an approved stability chamber, and that this was not disclosed to the FDA.

Under the civil settlement, Ranbaxy will pay an additional $350 million to resolve allegations that it caused false claims to be submitted to government health care programs between April 1, 2003, and September 16, 2010, for certain drugs manufactured at the Paonta Sahib and Dewas facilities.

The federal government’s share of the civil settlement amount is approximately $231.8 million, and the remaining $118.2 million will go to the states participating in the agreement.

The civil settlement resolves a lawsuit filed in U.S. District Court for the District of Maryland under the qui tam, or whistleblower, provisions of the False Claims Act, which allow private citizens to bring civil actions on behalf of the United States and share in any recovery.

With the exception of the allegations to which Ranbaxy pled guilty in the Criminal Information, there has been no determination of liability as to the claims settled by the civil agreement, the Justice Department said.

Last year, FDA and Ranbaxy agreed to an injunction that prevents drugs produced at the Paonta Sahib and Dewas facilities from entering the U.S. market until the facilities have been brought into full compliance with the FDCA and its implementing regulations.  Since September 16, 2008, when the FDA placed drugs from those facilities on an Import Alert, Ranbaxy has not imported drugs from those facilities into the U.S.

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