Hunton & Williams Partner Timothy Heaphy on Corporate Criminal Prosecution and Defense

Some white collar defense attorneys see the center of corporate crime prosecutions shifting from New York to Washington, D.C.

Timothy Heaphy sees it shifting from New York and Washington, D.C. to U.S. Attorney’s offices around the country.


“There is a trend toward decentralization,” Heaphy told Corporate Crime Reporter in a interview last week. “I don’t know that it’s shifting from New York to DC. It’s becoming more diffuse. There are more and more cases coming out of U.S. Attorney’s offices all over the country. I was on a phone call with the U.S. Attorney in North Dakota representing a client who had business in the oil fields of North Dakota.”

“The white collar field is expanding well beyond the Southern District of New York. Washington will definitely be the center of my practice. Hunton & Williams has 150 lawyers in Washington. But we are certainly not limited to New York or Washington. This is a practice where you need to be balanced geographically and substantively.”

Heaphy saw the decentralization at work first hand as U.S. Attorney in the Western District of Virginia.

His signature case — the 2012 criminal and civil resolution in the Abbott Labs case.

In that case, Abbott Labs pled guilty and paid $1.5 billion to resolve its criminal and civil liability arising from the company’s unlawful promotion of the prescription drug Depakote for uses not approved as safe and effective by the Food and Drug Administration (FDA).

“Abbott promoted Depakote to control behaviors in elderly dementia and schizophrenia patients without significant evidence of its effectiveness for that use, and even after clinical data established that it was not effective,” Heaphy said at the time. “The resolution includes a self-policing mechanism by which Abbott’s board of directors will monitor compliance with the law and report any violations, as well as a period of probation and court supervision.”

Heaphy said the Abbott Labs resolution was novel in a couple of respects.

“The first thing is that it was a guilty plea,” Heaphy told Corporate Crime Reporter. “The company accepted responsibility for misbranding. That was rare. They were put on probation and monitored by the court for several years. That again was different from some of the other off-label cases. . .They did the right thing when they were faced with this massive qui tam lawsuit and the criminal investigation. They handled it responsibly, by not just paying a fine but by changing the way they conducted business. And our hope was that would become industry standard in the pharmaceutical industry.”

The other novel thing about the Abbott Labs case was that it was a major corporate crime case filed in Abingdon, Virginia.

“It was a qui tam case filed in Abingdon, Virginia,” Heaphy said. “It was filed there on purpose. The relator’s counsel knew that our team of AUSAs, one on the civil side and one on the criminal side, had the experience and the capacity to handle a case of national significance even from our small branch office in Abingdon.”

“The Western District of Virginia also handled the Purdue Pharma case back in 2007. It was another case involving a medication that was marketed improperly. And there was a resolution where the company and several individuals were criminally charged.”

“That resolution made the Western District of Virginia one of the districts where these relator counsel shop these national cases. Since that case had gone so well, they were looking for a place where they would get government interest, where they would get a fair proceeding from our court, where it moved expeditiously.”

“We then did a parallel civil and criminal investigation. It lasted several years.”

“The Abbott Labs resolution was novel. It was not like some of the other off label cases. We were insistent on some novel provisions in that agreement. That became not just a big monetary recovery, but a change in culture within the company.”

Purdue Pharma and Abbott Labs were unusual in that the companies both pled guilty and both were put on probation. Why isn’t that becoming more of a trend?

“It happened here because we insisted on it,” Heaphy said. “The argument against it is often collateral consequences. If this company pleads guilty there will be follow on shareholder litigation, state regulators will take that admission and use it to extort more fines and penalties. We couldn’t survive a criminal guilty plea.”

“That is typically the argument you hear from a major company targeted with a criminal investigation. And it is true to some extent, although the going out of business argument is speculative at times. But there are real collateral consequences to a guilty plea. Our view in the Abbott case was that the conduct merited the result. This should not be the kind of business problem that could be resolved by just a substantial payment.”

“There needed to be additional collateral consequences. We wanted to give them credit for the reforms they had undertaken. And they made substantial moves to prevent this type of off label marketing from happening in the future. But we felt like it needed to be a criminal resolution. This conduct was serious enough that it merited this result, mindful of the fact that there would be collateral consequences.”

The Justice Department is tacking a bit in that direction with Credit Suisse and BNP Paribas, where they secured guilty pleas and tried to resolve the collateral consequences in a global settlement.

“The Department is sympathetic to the collateral consequences argument. But then there are times when the conduct is such that it just has to be criminal,” Heaphy said. “That just gets more attention from people within companies who are making sure the companies do the right thing. The deterrent effect of these cases is substantial. And the deterrent effect is enhanced when it is criminal as opposed to just a dollar figure paid in the form of a civil penalty.”

On the other hand, Heaphy bristles at criticism of the Department of Justice for not bringing criminal charges against bank executives for the 2008 financial crisis.

“It’s easy from ten thousand feet to look at things like the financial crisis in 2008 and say — that’s criminal and we need to hold people responsible for that. I get that. And that’s a legitimate concern,” Heaphy said. “But when you actually dig into the facts of what occurred, who made affirmative decisions, who was aware of what — prosecutors are looking for bad faith. They are looking for fraud, knowledge, disregard of rules and regulations. And that’s not always present.

The criticism that the Department has not charged a senior high level executive for anything having to do with the financial crisis is unfair.”

“The Department has aggressively pursued patterns of fraud. But often, the fraud is not the product of a senior level executive making a decision to disregard the rules. To the extent individuals are involved, they are more isolated. There is exposure for the company, but sometimes the CEO or the general counsel or the vice president was not personally aware in authorizing the decisions that led to the crisis.”

“I would caution anyone who makes that criticism to look closely at the evidence. That’s what Eric Holder and the people who bring these cases try to do. That what I tried to do as a prosecutor. And try to avoid this shorthand temptation to say — it’s outrageous that no top executive has gone to jail. It’s unfair.”

[For the complete Interview with Timothy Heaphy, see page 29 Corporate Crime Reporter 7(12), February 16, 2015, print edition only.]

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