Leboeuf Lamb’s Frederick Lacey, Bristol Myers Squibb, Unfortunate Events, Window Dressing, and Curing the Breach
21 Corporate Crime Reporter 27, June 27, 2007

In June 2005, Bristol Myers Squibb entered into a deferred prosecution agreement with the U.S. Attorney in New Jersey.

The U.S. Attorney, Christopher Christie, filed criminal charges against the company, but promised not to prosecute those charges for various fraudulent financial practices, including “channel stuffing,” on the condition that the company change its “corrupted corporate culture” and adhere to the terms of the deferred prosecution agreement.

That agreement expired earlier this month.

During the two years of the agreement, did the company adhere to its terms?

It did not.

Christie determined that the company had in fact violated the agreement.

And under paragraph 36 of the deferred prosecution agreement, if the company violates the agreement, then the company “shall” be subject to criminal prosecution.

In other words, if the agreement was breached, the agreement not to prosecute the company – for channel stuffing and other fraudulent financial practices – was off.

As a result of the breach of the deferred prosecution agreement, was Bristol Myers Squibb criminally prosecuted for the underlying crimes?

It was not.

Why not?

Frederick Lacey, senior counsel at LeBoeuf Lamb in New York, was the monitor in the Bristol Myers case.

He filed a report on his monitorship earlier this month with the U.S. Attorney.

Christie refused to release the entire report claiming it was “work product.”

He released only the report’s executive summary.

In that executive summary, Lacey writes that Christie determined that in fact Bristol Myers had “violated the deferred prosecution agreement” by engaging in criminal activity.

What criminal activity is that?

Making false statements to the Federal Trade Commission in connection with a proposed agreement with Apotex, a generic manufacturer, in 2006 to resolve a lawsuit over the patent for the blood-thinning drug Plavix.

Last month, Bristol Myers pled guilty to those crimes and agreed to pay a $1 million fine.

So, the company “breached” the deferred prosecution agreement, right?


And therefore it “shall” be prosecuted, right?


As Lacey points out, Christie made a judgement that the company had – get this – “cured the breach.”

How did they do that?

“By terminating the employment of certain senior executives in September 2006, and by taking other actions designed to prevent a recurrence of the corporate governance failures in the Plavix settlement process,” Lacey wrote.

“While the events relating to this matter were unfortunate, I believe that the manner in which Bristol Myers Squibb subsequently handled the matter, including its prompt initiation of a thorough internal investigation, the decisions it reached and the actions it took to cure the breach, its cooperation with the various government investigations and the transmission of timely companywide updates relating to the matter, clearly demonstrate that the changes to corporate governance mandated by the deferred prosecution agreement are now embedded at Bristol Myers Squibb.”

Lacey signed on with Bristol Myers in 2003 as an independent advisor.

Then in August 2004, as part of a settlement negotiated with the SEC to resolve the civil accounting fraud allegations, Lacey stayed on and began filing quarterly reports to the SEC.

Then in June 2005, as part of the deferred prosecution agreement, he was named monitor.

A year later, when he was made aware of the facts of the Apotex matter, Lacey recommended the removal of the company’s CEO, Peter Dolan, and the company’s general counsel, Richard Willard.

The board agreed and Dolan and Willard were removed.

On September 13, 2006, the company put out a press release announcing the removal of Dolan and Willard.

In that press release, the company makes the following statement:

“The Monitor and the U.S. Attorney did not find that there had been any violation of the deferred prosecution agreement. No finding of any unlawful conduct by the company or any of its employees has been made. The inquiry did not involve any matters that are the subject of the ongoing investigation by the Antitrust Division of the Department of Justice into
the Plavix settlement agreement.”

Wait a second.

Just one year later, Lacey reports that in fact the company did violate the agreement, that there was indeed not just unlawful conduct, but criminal conduct, and that the inquiry in fact involved the Plavix matter.

Lacey now says that it was a question of timing and interpretation.

“In September 2006, I was specifically asked whether I had yet made a determination that there had been a breach of the deferred prosecution agreement,” Lacey told Corporate Crime Reporter in an interview this week. “And I said that I had not. And there was no finding of unlawful conduct at that time.”

“When the Antitrust Division opened its investigation into the Plavix matter, I was told by the U.S. Attorney’s office that they did not want me to get involved in dealing with the Antitrust Division on this investigation,” Lacey said. “I was told it was being handled by the Debevoise firm. Debevoise was dealing with the Antitrust Division on this matter – right down to the entry of the plea agreement. I was told I was not to get involved in that aspect of the company’s activities. And I did not.”

Lacey says that his recommendation to have Dolan removed from the company had nothing to do with the Antitrust Division’s inquiry into the Plavix matter.

Instead, it had to do with Dolan’s failure to communicate with the board and management the details of the deal he had cut with Apotex.

Lacey said he was never misled by the company or any of its executives.

Lacey said that when he first met with Dolan in 2003, he had to make sure that Dolan and the company’s executives were going to take him seriously.

“When I first came into this job, I met with Peter Dolan and I said – I have a reputation here based on my years as U.S. Attorney and independent court-appointed administrator of the Teamsters,” Lacey said. “I’m not going to serve here as window dressing, if that’s why you are bringing me in. I’m going to turn over everything I can turn over. If there is anything wrong in this company, I’m going to expose it. Before I sign this agreement, I want to make sure that you know that and that you are absolutely committed in supporting me in this. And Dolan looked me in the eye and said – I know all about you, we have heard of some of the investigations that you have conducted, we know that you are thorough, that you aren’t going to compromise and that you are the person that we want. The Debevoise firm has recommended you. The Cravath firm has recommended you. Our general counsel has recommended you. And that’s why we have decided to retain you.”

Lacey said that the first thing he had to do was to determine whether Dolan meant what he said.

“And I told him that I wanted mandates going out to all of the senior management, and in turn to the next level, that they were to cooperate completely with me, making themselves available in person – and making available any documents,” Lacey said. “My job was to ensure that that they were doing things the right way. The first thing that I had to determine was whether I was going to be welcomed or resented by management. They had just come through this horrible period of channel stuffing. They had certain accounting violations.”

“I started out with many interviews – probably 30 interviews of key people,” Lacey said. “I wanted to determine whether they were going to resent me or welcome me or something in between. It turned out that they were welcoming me, they cooperated right from the beginning. There was embarrassment and anger at what had happened. They of course were not only employees but stockholders of stock that had dropped precipitously. I was able to take the kind of approach where it was benign rather than hostile. It was rather aggressive but not hostile.”

Aggressive enough to force Dolan and Willard out.

But not aggressive enough to get Lacey’s full report made public.

Or to get Christie to prosecute the company after determining the deferred prosecution agreement had been breached.

Benign enough to find a cure for all that.


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