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First of Its Kind: Drug Wholesaler Accepts DPA and Two Executives Face Criminal Charges in SDNY For Illegal Distribution of Opioids

On April 23, 2019, the US Department of Justice (DOJ) announced it has entered into a deferred prosecution agreement with Rochester Drug Co-Operative, Inc. (RDC), one of the 10 largest wholesale distributors of pharmaceutical products in the US, and filed felony criminal charges against two of RDC’s former senior executives for unlawful distribution of controlled substances (oxycodone and fentanyl) and conspiring to defraud the US Drug Enforcement Agency (DEA). During the relevant time period (2012-2016), RDC’s sales of oxycodone increased by approximately 800 percent (from 4.7 million to 42.2 million tablets) and fentanyl increased by approximately 2,000 percent (from 63,000 to over 1.3 million dosages). The two charged executives are RDC’s former chief executive officer, Laurence F. Doud III, and the company’s former chief compliance officer, William Pietruszewski.

Geoffrey S. Berman, the US Attorney for the Southern District of New York, noted in a press release that the prosecution is “the first of its kind,” with RDC and its former chief executive officer and former chief compliance officer charged with “drug trafficking, trafficking the same drugs that are fueling the opioid epidemic that is ravaging this country.” Keeping the focus on the C-suite, Mr. Berman emphasized that his office “will do everything in its power to combat this epidemic, from street-level dealers to the executives who illegally distribute drugs from their boardrooms.”

Ray Donovan, the DEA Special Agent in Charge of the investigation, underscored this sentiment:

Today’s charges should send shock waves throughout the pharmaceutical industry reminding them of their role as gatekeepers of prescription medication.  The distribution of life-saving medication is paramount to public health; similarly, so is identifying rogue members of the pharmaceutical and medical fields whose diversion contributes to the record-breaking drug overdoses in America . . . . This historic investigation unveiled a criminal element of denial in RDC’s compliance practices, and holds them accountable for their egregious non-compliance according to the law.”

A consistent theme across the three cases is the alleged deficiency in RDC’s compliance program—as well as the role that the former CEO and compliance chief allegedly played in directing RDC to ignore its obligations to maintain “effective control[s] against diversion of particular controlled substances into other than legitimate medical, scientific, and industrial channels” under 21 USC § 823(b)(1) and reporting suspicious orders under 21 CFR § 1301.74(b). The criminal pleadings include allegations that:

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DOJ Continues to Beat the Executive Drum in Recent Speeches

In the annual speeches at New York University Law School, Assistant Attorney General Leslie R. Caldwell specifically addressed the Department of Justice’s (DOJ) continued interest in examining corporate executives allegedly responsible for corporate misconduct.  Ms. Caldwell discussed this issue in the context of shaping corporate culture through deterrence and explained DOJ’s expectations of companies that want to obtain credit from DOJ for cooperation.

At the New York University Law School’s Program on Corporate Compliance and Enforcement on April 17, 2015, Ms. Caldwell said that “true cooperation,” even in the context of making a voluntary criminal disclosure, “requires identifying the individuals actually responsible for the misconduct—be they executives or others—and the provision of all available facts relating to that misconduct.”

At the New York University Center on the Administration of Criminal Law’s Seventh Annual Conference on Regulatory Offenses and Criminal Law on April 14, 2015, Ms. Caldwell also focused on the application of the few criminal statutes that impose strict liability on certain conduct, such as the Food, Drug and Cosmetic Act, that may be used for both corporations and executives.  She discussed how the criminal section evaluates cases in parallel with the civil section and with the regulating agency to determine whether to pursue the case, and if so, what remedy to pursue, whether criminal prosecution, financial penalties, restitution, asset forfeiture or federal program exclusion or debarment.

These speeches continue to show the government’s interest in examining individual executive liability during investigations under the various statutory and regulatory authorities available, and also are consistent with other DOJ remarks during the past year placing emphasis on conducting parallel criminal and civil investigations.  General counsel should stay on top of these developments and discuss them with senior executives (as well as audit and compliance committees), both to enhance awareness of risks and as an opportunity to provide examples of individual conduct that should materially lessen exposure to individual liability.

For a more in-depth review of these issues, please read the article by Tony Maida and Michael Peregrine published in Law360, Health Care Executive Liability Exposure Post-Sacred Heart.”




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