A RICO Charge…the latest arrow in the Yates quiver…

Regulators continue to show aggressive tactics as the Yates Memo guidelines continue to drive prosecutorial strategies.  As the 2015 Memo stated, there is an increased effort and focus being placed on individual accountability, as further evidenced by D.A.G. Yates’s comments delivered on Nov. 30th (https://goo.gl/uIi5WB) at the International FCPA conference.

Building on these efforts last week, the FBI arrested six former executives and managers of Insys Therapeutics for conspiring to defraud health insurers and pay kickbacks to physicians in exchange for their prescribing the company’s opioid-based painkiller.  Their product, Subsys, is a sublingual spray developed to treat pain management in cancer patients.  Readers may recall a nurse practitioner who pleaded guilty in 2015 to receiving $80k+ in kickbacks for prescribing Subsys.  Currently, the Sunshine Act only requires the reporting of financial relationships between pharmaceutical manufacturers and medical doctors, however, an amendment was put forth in 2015 to expand reporting requirements to include non-MD healthcare providers with prescriptive authority (e.g. nurse practitioners, physician assistants, etc.).

What is particularly unique and alarming about last week’s arrests, however, is the Justice Department’s decision to charge the individuals under the RICO Act.  The Racketeer Influenced and Corrupt Organizations Act (RICO) was voted into law over four decades ago as an effort to extend criminal and civil penalties for acts performed as part of an ongoing “criminal organization”.  A quick internet search will show that criminal RICO cases have typically been reserved for members of organized crime in the traditional sense (e.g. Gambino crime family; Lucchese crime family; Latin Kings street gang; etc.…i.e., not the type of folks corporate executives like being compared to…).  Appropriately, there are significant hurdles the Government must overcome to justify criminal charges under the RICO Act.  In the current Insys example, the DoJ clearly thinks it can meet such a burden of proof, allowing them to pursue significantly more severe penalties than would otherwise be possible (e.g. Anti-Kickback Statute, The Stark Law, etc.).

While there are political elements to this situation, Carmen Ortiz, U.S.A.-Massachusetts stated that she “[hopes the] charges send a clear message that [DoJ] will continue to attack the opioid epidemic from all angles, whether it is corporate greed or street level dealing,” it is clear that the Government remains committed to holding individuals accountable in an effort to curb bad corporate behavior.  The DoJ is standing firm on its position that the traditional practice of slapping companies with monetary fines does little to deter future conduct…their approach is simple, “the best way to deter individual conduct is the threat of going to jail.”

We don’t believe that this will necessarily open the floodgates for similar types of RICO prosecutions, nor do we have any insight into how these specific practices will continue or be weakened within the new political landscape. However, we remain committed to our position that adequate corporate compliance protocols and procedures are mandatory and here to stay.  The strongest defense, in our opinion, is strong internal controls and transparency, and a clear culture of compliance.  Lastly, as we have discussed before, companies that can help streamline and simplify compliance practices for large corporations will continue to attract significant attention and experience robust growth.

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