Does Forest Labs Case Signal New Era in White-Collar Prosecution?

Does Forest Labs Case Signal New Era in White-Collar Prosecution?

April 28th, 2011 // 12:46 pm @

All you white-collar defense lawyers should sit up and take notice of this story, by the WSJ’s Alicia Mundy, out in Tuesday’s paper.

The reason: because it hints at an interesting trend that just might be on the rise.

For now, a bit of background: Last year, the Department of Health and Human Services startle a lot of people when the agency said it would start invoking a little-used administrative policy under the Social Security Act against pharmaceutical executives.

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The policy allows officials to bar corporate leaders from health-industry companies doing business with the government, if a drug company is guilty of criminal misconduct.

Well, HHS is keeping good on its promise. Earlier this month, the department notified Howard Solomon of Forest Laboratories that it, yes, intends to keep him from doing business with the federal government.

The “action against the CEO of Forest Labs is a game changer,” said Richard Westling, a corporate defense attorney in Nashville who has represented executives in different industries against the government.

The Forest case has its origins in an investigation into the company’s marketing of its big-selling antidepressants Celexa and Lexapro. Last September, Forest made a plea agreement with the government, under which it is paying $313 million in criminal and civil penalties over sales-related misconduct.

A federal court made the deal final in March. Forest Labs representatives said they were shocked when the intent-to-ban notice was received a few weeks later, because Solomon wasn’t accused by the government of misconduct.

Forest is sticking by its chief. “No one has ever alleged that Mr. Solomon did anything wrong, and excluding him [from the industry] is unjustified,” said general counsel Herschel Weinstein.

The move against Forest’s Solomon brings the campaign to a new level. Lawyers not involved in the Forest case said the attempt to punish an executive who isn’t accused of misconduct could tie up the industry’s day-to-day work in legal knots.

According to Westling, the campaign should not be seen “solely a health-care industry issue. The use of sanctions such as exclusion and debarment to punish individuals where the government is unable to prove a direct legal or regulatory violation could have wide-ranging impact.” An exclusion penalty could be more costly than a Justice Department prosecution.

He said that the Defense Department and the Environmental Protection Agency, for example, have debarment powers similar to the HHS exclusion authority.

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