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Financial Fraud by Pharmaceutical Companies Leads to Multibillion-Dollar Sanctions and Multimillion-Dollar Whistleblower Awards

Pharmaceutical Integrity Coalition is looking for well-placed pharma industry insiders with information about financial fraud. Our attorneys and advocates are currently investigating claims of fraud by drugmakers in New York, California, Texas, Florida, Illinois, Washington, and many other states.

Our pharmaceutical industry specialists and whistleblower attorneys are actively engaged in fighting three common types of financial fraud in the pharmaceutical industry. These are: Foreign Corrupt Practices Act violations, Pay-for-delay anticompetitive schemes, and Medicaid Best Price fraud.

FCPA Violations

If you are a well-placed pharma insider, working as an executive, in the Finance Department, under the CFO, or in another relevant position, and you have access to information about potential Foreign Corrupt Practices Act violations, you can become a SEC whistleblower and receive a substantial award.

The Foreign Corrupt Practices Act (FCPA) has been a priority for regulators for a decade. This anti-bribery legislation prohibits multinational drug companies (and their executives, employees, and associates) from offering financial incentives to foreign officials in order to obtain or retain business or business advantages. The companies do not have to be American, it suffices that they are publicly traded in the U.S.

Besides prohibiting corrupt payments, used to secure business abroad, the FCPA requires U.S.-exchange listed drugmakers to keep accurate accounting records and exercise comprehensive internal controls. In other words, a company cannot easily claim it was unaware that bribes were being paid, because it is required to keep records of every relevant transaction.

In a complaint against Eli Lilly, the Securities Exchange Commission described the scope of the FCPA as legislation that “prohibits public companies through their officers, agents, subsidiaries, and affiliates, from corruptly offering, promising to pay, or authorizing illicit payments to a person while knowing that all or a portion of those payments would be offered, given, or promised, directly or indirectly, to a foreign official or official of a foreign political party for the purposes of influencing his acts or decisions in his official capacity, inducing him to do or omit to do actions in violation of his lawful duties, securing an improper advantage, or inducing such foreign official to use his influence with a foreign government or instrumentality thereof to assist in obtaining or retaining business,” and “requires public companies to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer.”

The FCPA governs the majority of interactions between drug company representatives and foreign officials, especially in countries where healthcare is partially funded by the government.

Some of the interactions that often involve fraudulent transactions include:

  • R & D of new products
  • Clinical trials
  • Seminars and conferences
  • Hospital tenders
  • Regulatory approvals
  • Certifications
  • Grants, donations, and fellowships
  • Marketing
  • Travel
  • Hospitality
  • Gifts

Regulators consider the pharmaceutical industry a high-risk sector for foreign bribery. Since 2009, FCPA settlements have generated over $225 million in fines, penalties, and disgorgement.

Whistleblowers who provide “original, timely, and credible information” to the SEC, leading to a successful enforcement action, can be eligible for an award ranging from 10 to 30 percent of the money collected when sanctions surpass $1 million.

According to former SEC Enforcement Director Andrew Ceresney, “A few factors combine to make [the pharma industry] a high- risk industry for FCPA violations. Pharmaceutical representatives have regular contact with doctors, pharmacists, and administrators from public hospitals in foreign countries. Those people often are classified as foreign officials for purposes of the FCPA, and they often decide what products public hospitals or pharmacies will purchase. This influence over the awarding of contracts is true for virtually every country around the globe.”

Common FCPA Issues in The Pharmaceutical Industry

When it comes to FCPA violations, the pharma industry has the largest number of repeat offenders. Regulators focus on a variety of practices when investigating this type of cases, including:

  • Inflated expense reports
  • Inflated commissions
  • Inflated fees paid to customs brokers
  • Improper accounting and record keeping related to payments to doctors, hospitals, etc.
  • “Excess discounts” to distributors (excess used to pay bribes)
  • Payments to philanthropic organizations that benefit overseas government officials
  • Luxurious travel, entertainment, meals, accommodation offered to foreign officials/decision-makers
  • Cash/gift bonuses paid to purchasers
  • Fees paid to intermediaries handling sales to a foreign government
  • Lump sums paid to hospitals and other foreign buyers

Insiders working for companies that have settled FCPA cases in the past should be on the alert. Repeat offenders include Biomet and Orthofix, both of which faced enforcement actions in 2012 and repeated the offense in 2017. Following the first action, neither company adhered to the reporting and oversight obligations mandated by their settlements with regulators.

Expanding the Concept of Payments to a Foreign Official

Case law supports the notion that payments to employees of private organizations where the government has an interest can also be considered bribes paid to a foreign official.

In 2017, Alere paid $13 million to settle bribery charges related to its activities in India and Colombia. In the Latin American country, the bribes had been paid to a manager of a private company, which was taken over by Colombia’s Ministry of Health due to mismanagement. Regulators determined that, though the recipient of the bribes was not directly employed by the government, the illegal payments were in violation of the FCPA.

In 2017, SBM paid $238 million to settle FCPA violation charges involving Brazil, Angola, Equatorial Guinea, Kazakhstan, and Iraq. At the time, regulators established that payments made to a private company that operated a concession granted by a foreign government could also be considered bribes paid to a government official.

Pharmaceutical Companies Have Paid Billions to Settle FCPA Violation Charges, Whistleblowers Have Received Hundreds of Millions in Awards

Under the SEC Whistleblower Program, the agency issues awards to whistleblowers who come forward with original information about FCPA violations that lead to monetary sanctions surpassing $1 million. SEC whistleblowers receive between 10 and 30 percent of the total sanctions imposed.

During 2019, companies paid nearly $2 billion to settle allegations of FCPA violations. In 2018, the monetary sanctions surpassed $3.2 billion. Teva’s $519 million settlement was the largest paid over FCPA violations in the pharmaceutical industry.

Biomet Whistleblower Receives $4.5 Million Award

In 2019, a Zimmer Biomet insider who became a SEC whistleblower received a $4.5-million award. The settlement paid by the company to resolve both SEC and DOJ cases amounted to $30 million.

The whistleblower was an orthopedic surgeon based in Brazil who once presided over the Brazilian Orthopedic Sports Medicine Society. According to the allegations, a subsidiary of the Indiana-headquartered medical device maker improperly recorded transactions in Brazil and paid bribes to customs officials in Mexico.

This was the first time a whistleblower received an award after reporting internally to the company and then to the SEC. The SEC allows tipsters who first report internally to collect awards in the event of a successful enforcement action. At the time, a SEC spokesperson commented, “In this case, the whistleblower was credited with the results of the company’s internal investigation, which were reported to the SEC by the company and led to the Commission’s resulting enforcement action. . . The whistleblower gets credit for the company’s internal investigation because the allegations were reported to the Commission within 120 days of the report to the company.”

Teva Pays $519 Million to Settle FCPA Violation Charges - Pending Whistleblower Award Could Exceed $50 Million

In 2016, generic drug manufacturer Teva agreed to pay $519 million to resolve allegations that it bribed government officials in Russia, Mexico, and Ukraine. The case involved both civil and criminal charges.

Bio-Rad Laboratories Pays $40.7 Million to Settle Foreign Bribery Allegations. Whistleblower Gets $8 Million in Anti-Retaliation Lawsuit

In 2014, California-headquartered Bio-Rad Laboratories agreed to pay the SEC $40.7 million to settle allegations of foreign bribery involving Russia, Vietnam, and Thailand. The company also paid $14.35 million to settle a related suit brought by the Department of Justice.

The SEC sanctions included penalties, disgorgement, and prejudgment interest. There was no whistleblower award in this case, as Bio-Rad self-reported the FCPA issues to the agency.

However, Bio-Rad’s former General Counsel, who raised concerns internally about potential FCPA compliance issues in China, filed an anti-retaliation lawsuit after the company fired him in 2013. In 2017, a jury awarded him $10.8 million, including back pay, stock compensation, and punitive damages. The award was upheld by the 9th U.S. Circuit Court of Appeals (San Francisco) in February 2019, yet it was reduced to $2.96 million in back pay and stock compensation and $5 million in punitive damages, totalling about $8 million.

Eli Lilly Paid $29.4 Million Over FCPA Violations in Russia, Poland, China, Brazil, Anonymous Whistleblower Receives Multimillion-Dollar Award

In 2012, Eli Lilly settled a case filed by the SEC involving FCPA violations in various foreign countries. According to the allegations, the pharmaceutical giant bribed officials to obtain business in Russia, Brazil, China, and Poland.

Lilly paid $29.4 million to the SEC, including disgorgement of $13.9 million, prejudgment interest amounting to $6.7 million, and an $8.7 million penalty. The whistleblower who initiated the case received between 10 and 30 percent of the total monetary sanctions.

Nordion Pays Half a Million to Settle FCPA-related Charges Involving Russian Officials

In 2016, Canada-headquartered Nordion and one of its employees paid $500,000 to resolve allegations that the company bribed officials in Russia to secure drug approvals. The employee, Mikhail Gourevitch, allegedly received kickbacks for his role in the scheme.

Medicaid Best Price Violations

To ensure that a drug is covered by Medicaid, drugmakers must promise they will offer the government program the lowest price available to any purchaser. Pharma companies are thus required to report their “Best Price” to Medicaid.

If Medicaid pays more than the reported Best Price for a drug at some point, the drugmaker must offer rebates to make up for the excess payments.

The Best Price is calculated based on parameters like “average wholesale price” and “average manufacturer price.” When drugmakers manipulate their Best Price, large amounts of taxpayer dollars are lost.

A drug’s Best Price is the lowest price paid by any purchaser after rebates, discounts, volume discounts, etc. When a company offers private buyers a lower price than it offers to Medicaid, there can be grounds for a False Claims Act lawsuit, as the resulting claims for payment submitted to the government program constitute false claims.

Pharmaceutical companies have paid hundreds of millions of dollars to settle allegations of Medicaid Best Price fraud.

GlaxoSmithKline Agrees to $300 Million Medicaid Best Price Fraud Settlement - Four Whistleblowers Receive $250 Million for Exposing Numerous Violations

In 2012, GlaxoSmithKline agreed to pay $300 million to resolve claims that it manipulated the Best Price reported to Medicaid, resulting in underpayment to the government program. Glaxo had allegedly offered more convenient prices to various private purchasers.

This Best Price fraud case was part of a massive investigation that resulted in a $3-billion settlement. It was initiated by four GlaxoSmithKline insiders turned whistleblowers, who shared a $250 million award.

Merck Best Price Fraud Whistleblower Receives $44 Million Award, Drugmaker Pays a Total of $650 Million

In 2008, Merck & Company agreed to a $650-million settlement to resolve allegations that the company failed to offer the appropriate rebates to Medicaid and paid kickbacks to medical professionals. According to a whistleblower complaint, Merck failed to report discounts offered to hospital buyers.

The whistleblower was H. Dean Steinke, a former Merck employee. According to his allegations, the drugmaker violated Medicaid Best Price rules on its drugs Zocor and Vioxx. Steinke received a $44-million whistleblower award.

Pfizer Pays $784.6 Million in FCA Case Over Medicaid Best Price Violations. Two Whistleblowers Share $98 Million Award

In 2016, Pfizer agreed to pay $784.6 million to resolve allegations that its Wyeth unit reported false prices on Protonix Oral and Protonix IV, violating Medicaid’s Best Price requirements.

The alleged misconduct was brought to light in a False Claims Act lawsuit filed by whistleblowers Lauren Kieff, a former AstraZeneca sales rep, and William St. John LaCorte, a New Orleans-based physician. For their efforts in exposing Medicaid fraud, the two whistleblowers received a collective award of $98 million.

Allegedly, Wyeth secretly offered bundled discounts on Protonix to thousands of U.S. hospitals. The practice resulted in Medicaid overpaying for the drug by hundreds of millions of dollars.

Pay-for-delay: Drugmakers Agree Not to Compete

Drug companies put hundreds of millions of dollars into their marketing efforts. It takes a very long time to get a drug approved by the FDA, and oftentimes, by the time approval is granted, the drug’s patent is about to expire. Once a patent expires, anyone can market the drug. To avoid competition, pharmaceutical companies often pay off generic-drug makers, so they will delay the marketing of generics based on the drugs they have developed.

In other words, a brand-drug maker will say, “Our patent for Medicine A is expiring in a year. You have applied to the FDA to start making it as a generic. That means the price is going to go from $60 a month, or $200 a month, down to $3 a month once those generics are available. We will pay you a billion dollars if you tear up your generic application with the FDA.” This is called “pay-for-delay.” In this way, drugmakers ensure their competitors will not sell generic versions of their drugs right away.

Pay-for-delay Cases

Opposing pay-for-delay schemes has been a priority for the Federal Trade Commission (FTC) over the last few years. As branded drug makers offer patent settlements to lower-cost generics manufacturers in order to sidestep competition, it is consumers who pay the price. According to official estimates pay-for-delay schemes cost Americans $3.5 billion a year in higher drug costs.

The FTC has been prosecuting pharmaceutical companies that engage in these illegal practices since 2001. This has resulted in many multimillion-dollar settlements. Although the FTC does not pay awards to whistleblowers, conduct regulated by the FTC can usually give rise to claims under a variety of whistleblower award programs, including the False Claims Act.

Reckit Benckiser Pays $50 Million Over Pay-for-Delay Scheme and $1.4 Billion Over FCA Violations, Six Whistleblowers Share Estimated $100 Million Award

In 2019, a case against Reckitt Benckiser Group, initiated by six whistleblowers, resulted in a False Claims Act settlement amounting to $1.4 billion and a $50-million settlement with the Federal Trade Commission over anticompetitive practices.

Reckitt Benckise’s marketing of its opioid-addiction treatment Suboxone allegedly violated the False Claims Act. According to the FTC, the company also engaged in anticompetitive practices to prevent generic versions of Suboxone from entering the market.

The whistleblowers in the case shared an estimated award surpassing $100 million. Under the False Claims Act, industry insiders who help expose fraud can receive cash awards amounting to up to 30 percent of the government’s total recoveries.

Three Drugmakers Pay California $70 Million over Pay-for-Delay Scheme

Three drugmakers, Teva, Endo, and Teikoku Pharma USA, collectively agreed to pay the State of California $70 million to resolve allegations that they conspired to stop various generic drugs from coming to market.

According to the allegations, Teva’s subsidiary Cephalon paid generic drug makers $300 million to delay generic forms of its drug Provigil (a narcolepsy treatment) from entering the market for approximately six years. The company paid the largest share of the settlement, a total of $69 million. In addition, Teva agreed to relinquish $1.2 billion in ill-gotten gains, which were paid to buyers of the drug who were affected by the scheme.

According to California prosecutors, pay-for-delay schemes force U.S. consumers to pay 90 percent more for drugs. The state’s Attorney General said, “No one in America should be forced to skip or ration doses of medicine that they need … and certainly not because a drug company is colluding to keep the price of your drug artificially high even when cheaper options could be available. ”

Another portion of the settlement (amounting to $760,000) related to the pain patch Lidoderm. In this case, Teva, Endo, and Teikoku made an illegal deal to prevent generic versions of Lidoderm from being marketed for about two years. Teva also paid $200,000 to cover California’s legal costs.

GlaxoSmithKline Paid $35 Million Over Pay-for-Delay Scheme Involving Flonase

In 2013, a Pennsylvania court approved a $35 million settlement that concluded a class action against GlaxoSmithKline alleging it paid competitors to delay marketing of a generic form of its drug Flonase.

Brought by a group of Flonase purchasers, the lawsuit alleged Glaxo’s tactics resulted in inflated prices for the nasal spray and reduced competition. The drug’s price was reduced from $70 per bottle in 2004 to $20 in 2009, but the plaintiffs claimed the price reduction would have occurred much faster if generics had been allowed to enter the market sooner.

Impax Laboratories and Endo Pharmaceuticals

In 2019, Endo Pharmaceuticals agreed to settle an FTC case involving a pay-for-delay scheme. According to the FTC’s complaint, in 2010, Endo paid Impax $112 million so it would not market a generic version of Endo’s drug Opana ER until 2013. The settlement included entry into a compliance program and reporting requirements for the next 20 years.

Seeking Pharmaceutical Fraud Whistleblowers

If you have information about pay-for-delay schemes, FCPA violations, or Medicaid Best Price fraud, you may be eligible for a multimillion-dollar whistleblower reward. In order to secure a cash award, you have to go through a formal process requiring legal counsel. If you call a fraud hotline, you may lose your chance of securing any kind of a reward.

There Is a Deadline for Pharma Insiders to File a Lawsuit and Secure a Cash Award

Whistleblowers can file a pharmaceutical fraud lawsuit under a number of federal and state laws. Pharma insiders may receive between 10 and 30 percent of the total monetary sanctions and recoveries resulting from their case.

Insiders who submit original information about fraud in the pharmaceutical industry during the eligible period can receive substantial cash awards. The deadlines to file a complaint vary depending on the type of fraud and the regulatory entities involved. To establish whether your claim is still valid, contact a whistleblower attorney specialized in healthcare and pharma.

In the case of violations reported to the SEC, whistleblower awards have often been reduced when there were “unreasonable reporting delays.” Our seasoned whistleblower attorneys and consumer advocates can advise you as to when, with whom, and how to file your complaint to maximize awards and ensure fraudulent behavior stops.

Report Pay-for-delay, Best Price Fraud, and FCPA Violations to Obtain Multimillion-Dollar Whistleblower Awards

Pharmaceutical Integrity Coalition offers some of the most comprehensive services for insiders who want to blow the whistle on financial fraud perpetrated by drugmakers. Our attorneys and investigators provide sound legal advice to employees working in various positions within the industry.

Fraud by drugmakers costs U.S. taxpayers billions of dollars every year. Whistleblowers play a key role in exposing misconduct and recovering government funds. If you have information about bribes paid by drugmakers abroad, drugs that were sold at a discount to private buyers rather than Medicaid, or schemes to delay generics’ entry into the market, contact us today.

If you want to file a fraud lawsuit against your employer, its affiliates, or their executives, our attorneys will ensure that your identity is kept confidential and that you are protected from retaliation. We are working with whistleblowers from companies like Pfizer, Johnson & Johnson, GlaxoSmithKline, Merck, AstraZeneca, Allergan, Teva, Purdue, Novartis, Bristol-Myers Squibb, Mylan, and others. Our clients have reported fraud involving misconduct by companies with activities in Georgia, Nebraska, Maine, Illinois, Louisiana, Mississippi, Florida, Michigan, and other states. Some of our current FCPA cases relate to foreign bribery in countries like India, China, Brazil, Russia, and elsewhere.

Whether you are a foreign national, a pharmaceutical company employee, a medical professional, or a foreign official with information about potential financial fraud by drug and medical device makers, we can help. Contact our pharmaceutical fraud attorneys today for a free and confidential case evaluation.

“The employee who, in the public interest, has the personal courage to challenge illegality is a kind of public hero.”