Transcript FEDERAL CRIMINAL LAW

FEDERAL CIVIL AND
CRIMINAL LAWS
HOW THEY IMPACT
BIOMEDICAL COMPANIES
AND
THEIR EMPLOYEES
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Prepared By:
Michael A. Swit, Esq.
Law Offices of Michael A. Swit
539 Samuel Ct., Suite 229
Encinitas, CA 92024
760-815-4762
fax: 760-454-2979
[email protected]
FOR:
SDRAN RAC Review Course
Oct. 23, 2003
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INTRODUCTION
This outline presents, in a “user friendly”
format, how the civil and criminal laws of the
federal (i.e., the United States) government
impact a biomedical company and its
employees.
 It reviews the different types of violations
that can occur, and the penalties and other
collateral consequences of those violations.
OR…
WHY “CRIME” DOESN’T PAY!!
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THE FEDERAL FOOD, DRUG, and
COSMETIC ACT (“FDCA”)
 The main law that applies to biomedical
companies
 How the FDCA works:
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FDCA creates requirements you must meet
If you don’t meet the requirements, either by doing
the wrong thing or failing to do the right thing, you
commit
a “prohibited act”
Any “person” that commits a “prohibited act”
can be charged with a crime under the FDCA
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THE FDCA IS A “STRICT
LIABILITY” CRIMINAL LAW
 No intent or knowledge (of the crime or the
act that = the crime) is needed for a person
to be accused of a crime for violating the
FDCA; instead …
 If a violation of the FDCA occurs, and a
person was in a position to prevent the
violation, then the person may be charged
with a crime

U.S. v. Park -- Supreme Court case (1975)
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WHAT FDCA REQUIRES OF A
REGULATED COMPANY and ITS
EMPLOYEES:

Three basics:
Make and sell products that are
“approved,” “cleared” or
otherwise lawfully marketed
 Do NOT make or sell products that
are “adulterated”
 Do NOT make or sell products that
are “misbranded”

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VIOLATING FDCA’s
REQUIREMENTS MAY LEAD TO
CRIMINAL CHARGES
 GENERAL RULE #1: If you do anything
involving the sale of an unapproved,
misbranded or adulterated drug or device,
you have committed a Prohibited Act” under
§301 of the FDCA
 GENERAL RULE #2: If you do a Prohibited
Act, you can be charged with a crime under
the FDCA
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EXAMPLES OF “PROHIBITED
ACTS” UNDER FDCA §301
 Selling an adulterated or misbranded
drug in “interstate commerce” -- i.e.,
across state lines
 Receiving an adulterated or misbranded
drug after it was shipped
 Selling a drug requiring an NDA without
having an effective approval
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“PROHIBITED ACTS” UNDER
FDCA §301 (cont’d)
 Refusing to permit FDA to
inspect your plant
 Counterfeiting a drug
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FDA’s THREE POWERS UNDER FDCA
IF A PERSON DOES A “PROHIBITED
ACT”
 Criminal prosecution of individuals or
companies
 Seizure of violative goods
 Injunction orders against persons or
companies doing the prohibited acts
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SEIZURE
FDCA § 304
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Civil Action in rem
On “libel” of information in U.S.
District Court
Affected person can file a “claim”
and show why goods are OK
After entry of decree, can be:

destroyed, sold (if OK) or
reconditioned
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INJUNCTION
FDCA § 302
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Civil Action Against Person or Corporation
Court has authority to restrain violation AND, in
certain circumstances, may order a recall
Disgorgement & Abbott Labs & Schering
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the costs are rising – now $500MM
An Injunction action may lead to -- or arise out
of -- consent orders
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Schering-Plough Consent
Decree, May 2002
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$500MM fine, subject to court approval,
represents disgorgement of profits from
adulterated products
Result of 13 FDA inspections at 4 facilities in
NJ and PR since 1998
Fine includes $471,500 payment to cover
costs of past FDA inspections
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Schering-Plough Consent
Decree, May 2002 …
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125 Rx/OTC drugs made at these plants,
representing 90% of S-P's products
Permanent injunction requires procedures to
assure cGMP compliance; suspended
manufacturing of 73 products
Intensive internal audit required for 5 years,
with increased FDA inspection as well
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A FOURTH FDA “POWER”

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“Force” a person to do a “Recall”
Recalls are “voluntary” requests by a
drug company to send back drugs that
violate the law
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Devices -- FDA does have power to order
a recall [§ 518(e)]; rarely done -- requires
a finding that a device would cause
“serious, adverse health consequences or
death.”
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See 21 CFR Part 7 -- general info on recalls
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RECALLS -
BUT, FDA has ways to “make” you do a
recall
threatens prosecution, injunction or
seizure
 threatens or actually spreads bad
publicity about person who did the
“prohibited act”
FDCA § 705
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FDA’s Non-Judicial
Enforcement Tools:
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Warning Letters
Civil Penalties (devices)
“Notices of Violation”
Inspections
Application Integrity Program
Generic Drug Enforcement Act of 1992
Powers (e.g., debarment)
Publicity
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The “305” Hearing
FDCA § 305
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You don’t want to get a “305 Notice”
If you do, be happy -- you get to argue
your case before FDA takes official
criminal referral
Fairly informal process
Has been successful in avoiding charges
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WARNING LETTERS
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Procedure -- see Regulatory Procedures
Manual (RPM), Chapter 8
May issue directly from district office
Others require FDA HQ sign-off
Public documents (your competitors will
read -- and circulate -- them)
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Notices of Violation
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Most frequently used on the drug side;
now require clearance via FDA Office of
Chief Counsel (may change back)
Not quite a warning letter, but should
be taken seriously
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APPLICATION INTEGRITY
PROGRAM (AIP)
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Spawned by the generic drug scandal
56 Fed. Reg. 46191 -- Sept. 10, 1991
See Compliance Policy Guide (CPG) 7150.09
(www.fda.gov/ora/ora_home_page.html)
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Triggers -- “actions subverting FDA process”:
Examples:
 Fraud in applications or other falsifications
 Bribery or gratuities
Problem -- “bars” you from approvals
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APPLICATION INTEGRITY
PROGRAM (AIP) -- con’d
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Corrective Action Plan -- what you need
to do if fall under AIP:
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Cooperate with FDA and other federal
investigators
Identify all wrongdoers and remove them
from authority
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APPLICATION INTEGRITY
PROGRAM (AIP) -- con’d
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Conduct an internal review with outside
consultants to uncover all other
wrongdoing
Written action plan:
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Procedures and controls to preclude in future
Ethics programs
FDA Verification -- reinspection
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CRIMINAL PROSECUTION
FDCA § 303
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Process -FDA District Office -- FDA Center OC -FDA GC -- Justice Department (Ofc. Of
Civil
Litigation) -- U.S. Attorney -- Grand
Jury (if felony sought) –
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
Indictment – felony
Information – misdemeanor or for plea
agreements
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THE PARK CASE: “Strict Liability in
Action”
 Question: Is it fair to charge a person with a
crime if they did not know about a violation or
did not intend to violate the law?
 Mr. Park -- president of Acme Markets
 Acme had a warehouse in Baltimore, which
FDA inspectors found to be filthy -- thus,
Acme and Mr. Park were charged with
adulterating food (also a prohibited act under
§301 of FDCA)
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THE PARK CASE (cont’d ...)
 U.S. Supreme Court:

If a person is in a position to stop a
violation of the FDCA from occurring, but
the violation happens anyway, then that
person (whether an individual such as Mr.
Park or a company) can be charged with a
crime under the FDCA
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THE PARK CASE (cont’d ...)

Reason: a person who voluntarily
takes a job in an industry regulated
by the FDCA has a higher duty -- to
protect the public health -- thus is
subject to the “strict liability”
standard of FDCA
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THE PARK CASE
(cont’d ...)
 Exception to Strict Liability: if it was
“objectively impossible” for the responsible
person (such as Mr. Park) to prevent the
violation, then not a crime under FDCA
 “Objective Impossibility” may require,
according to one court, that a person show
that they exercised extraordinary care to
prevent the violation, but it still happened
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IMPACT OF THE PARK CASE ON
A DRUG or DEVICE COMPANY:
 Company executives have a duty:


to try to find violations of the law; and
to prevent violations from occurring in the
first place
 Company employees are basically
“partners” with the executives because, if
you violate the FDCA, your boss could be
charged with a crime
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OTHER FEDERAL CRIMES AND THE
BIOMEDICAL INDUSTRY
 False Statements -to make a statement
(oral or written) to
the federal
government that is
false - - e.g., false
data submitted to
FDA in an ANDA -you can’t lie to
Uncle Sam.
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OTHER FEDERAL CRIMES AND
THE BIOMEDICAL INDUSTRY …
 Conspiracy -- happens when you plan
with another person to do a crime and
one of you takes one action (called an
“overt act”) to carry out that plan
NOTE: it is still a crime even if you stop
the plan before the crime happens if
you or your co-conspirator did the one
“overt act”
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OTHER FEDERAL CRIMES AND
THE BIOMEDICAL INDUSTRY …
 Bribery - - to give
money or anything
else of value in
return for a
government official
taking come action
for you
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OTHER FEDERAL CRIMES AND
THE BIOMEDICAL INDUSTRY …
 Gratuity - - same as bribery, but you
don’t ask the government official to do
anything -- still wrong because officials
should be fair to all and money may
influence them to favor you
 Perjury: lying while under oath,
whether in court testimony or in a
sworn affidavit
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OTHER FEDERAL CRIMES AND THE
BIOMEDICAL INDUSTRY …
 Obstruction of justice:
interfering with a
government official’s
lawful performance
of their duties - e.g., not letting an
FDA inspector into
see a room they
asks to see that
they have a right to see
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OTHER FEDERAL CRIMES AND THE
BIOMEDICAL INDUSTRY …
 Wire Fraud: to use a telephone,
telegraph, or other form of electronic
communication (e.g., e-mail) to do a crime
 Mail Fraud: to use the mails to do a crime
 Aiding and Abetting: occurs when you
don’t do the crime itself, but you help
someone else do it
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CRIMINAL PENALTIES -- or
“Does Crime Pay?”
 PRISON or JAIL:
 Felonies: up to five
(5) years in prison
for each violation

Misdemeanors: up
to one (1) year in
jail for each
violation
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CRIMINAL PENALTIES - - or
“Does Crime Pay?” …
 FINES: amount
depends on the
person (whether an
individual or
company), the class
of crime (felony v.
misdemeanor), and
if the crime resulted
in a death
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CRIMINAL PENALTIES - - or
“Does Crime Pay?” …
 FINES
Individual:
 misdemeanor: $100,000 per violation
 misdemeanor resulting in death or
felony:
$250,000 per violation
Company:
 misdemeanor: $100,000 per violation
 misdemeanor resulting in death or
felony:
$500,000 per violation
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CRIMINAL PENALTIES - - or
“Does Crime Pay?” …
 PROBLEMS FOR
INDIVIDUALS IF
CONVICTED:
 Lose right to vote
 Lose right to run for
public office
 Damage to
reputation
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CRIMINAL PENALTIES - - or
“Does Crime Pay?” …
 PROBLEMS FOR
INDIVIDUALS IF
CONVICTED
(cont’d):
 Can be deported if
not a U.S. citizen
 Financial ruin - lose your job
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CRIMINAL PENALTIES - - or
“Does Crime Pay?” …
 PROBLEMS FOR COMPANIES
CAUSED BY CRIMINAL
CONVICTIONS:
♦ Shareholders sue the company, its officers
and directors
♦ Other companies may sue the company
(e.g., Mylan Labs sued Par and others)
♦ Federal government may suspend or
“debar” company from selling to
government
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CRIMINAL PENALTIES - - or
“Does Crime Pay?” …
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PROBLEMS FOR COMPANIES CAUSED
BY CRIMINAL CONVICTIONS (cont’d):
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FDA may refuse to approve applications
under AIP

May lose state licenses

Customers abandon you

Decreased sales may force lay-offs of
employees
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CRIMINAL PENALTIES - - or
“Does Crime Pay?” …

PROBLEMS FOR COMPANIES CAUSED
BY CRIMINAL CONVICTIONS
(cont’d):
♦ “Qui Tam” actions under the False
Claims Act -- e.g., Lifescan case -“whistle blower” cases -- leading to civil
damages and may also spawn a criminal
prosecution
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CRIMINAL PENALTIES - - or
“Does Crime Pay?” …
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PROBLEMS FOR COMPANIES CAUSED
BY CRIMINAL CONVICTIONS (con’d):
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Financing disappears -- banks may refuse
to lend money
May violate lending agreements, real
estate mortgages or leases
A criminal investigation can cause great
disruption to normal business activities
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CRIMINAL PENALTIES - - or
“Does Crime Pay?” …
 PROBLEMS FOR COMPANIES CAUSED
BY CRIMINAL CONVICTIONS (con’d):

High cost in money of an investigation:
–
lost sales
–
stock price falls
–
attorney’s fees and costs
–
costs of complying with requests by
government for documents
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FDA Activity
Enforcement Statistics Fiscal Year 2002
Prosecution -- 0*
Civil Money Penalty -- 1
Seizures -- 13
Consent Decrees of Permanent Injunctions (Filed) -- 15
Convictions – OCI – 317
Warning Letters – 755
FDA 483s Issued 7,180
Recalls -- 5,025
Inspections -- 18,572
Import Refusals -- 32,654
Asset Forfeitures (OCI) -- $18,300,000
Fines and Restitution (OCI) -- $24,027,549
*: Does not include Office of Criminal Investigations data.
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FDA Activity … Prosecutions
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FDA Activity … OCI
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FDA Activity … Injunctions
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FDA Activity … Seizures
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FDA Activity … Recalls (by
Center)
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FDA Activity … Warning
Letters (by Center)
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FDA Activity … Warning
Letters (by Year)
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FDA Activity … Inspections
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FDA Activity – Devices
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FDA Activity … Devices
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FDA Activity … Drugs
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FDA Activity … Drugs
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FDA Activity … Biologics
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FDA Activity … Biologics
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Source of FDA Statistics Slides
FDA -- “The Enforcement Story”
http://www.fda.gov/ora/about/enf_story/default
.htm
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Parting thoughts …

These are pictures you do not want
to see ….

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
in your newspaper ….
on your local news ….
on the Internet ….


or
in FDA regulatory lawyers’
presentations for years to come ….
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Ex-Imclone CEO exits federal court
after being charged with nine felony
counts
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Ex-Imclone CEO exits federal
court after entering guilty plea …
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the next picture …
Dr. Wakshal in prison garb???
Pled guilty Oct. 15, 2002 to six counts,
including:
►bank fraud
►securities fraud, aka “insider trading”
►conspiracy to obstruct justice, and
►perjury
Faces: up to 65 years in prison; millions in
fines
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THANKS:
 To Monika Chas, formerly of Par
Pharmaceutical’s Regulatory Affairs
Department, for drawing the illustrations in
this outline.
 To Michelle Viña, formerly of Par
Pharmaceutical’s M.I.S. Department, for
getting Monika’s drawings imported into the
software program so they could be printed
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The End
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Questions?
Call, e-mail, fax or write:
Michael A. Swit, Esq.
Law Offices of Michael A. Swit
539 Samuel Ct., Suite 229
Encinitas, California 92024
760-815-4762 ♦ 760-454-2979 (fax)
[email protected]
http://www.fdacounsel.com
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About the speaker ...
Michael A. Swit has extensive experience in all aspects of FDA regulation with a particular emphasis on
drugs and medical device regulation. In addition to his regulatory law experience, Mr. Swit also
served for three and a half years as vice president and general counsel of Pharmaceutical Resources,
Inc. (PRI) a prominent generic drug company and, thus, brings an industry and commercial
perspective to his representation of FDA-regulated companies. While at PRI from 1990 to late
1993, Mr. Swit spearheaded the company’s defense of multiple grand jury investigations, other
federal and state proceedings, and securities litigation stemming from the acts of prior management.
Mr. Swit then served from 1994 to 1998 as CEO of Washington Business Information, Inc. (WBII) a
premier publisher of FDA regulatory newsletters and other specialty information products for the
FDA publishing company. Before starting FDACounsel.com, he was with Heller Ehrman from
May 2001 to May 2003, and also twice in private practice with McKenna & Cuneo, from 1988 to
1990 and, most recently, from 1999 to 2001, first in that firm’s D.C. office and most recently, in its
San Diego office. He first practiced FDA regulatory law with the D.C. office of Burditt & Radzius
from 1984 to 1988. Mr. Swit has taught and written on a wide variety of subjects relating to FDA
law including, since 1989, co-directing a three-day intensive course on the generic drug approval
process, serving on the Editorial Board of the Food & Drug Law Journal, and editing a guide to the
generic drug approval process, Getting Your Generic Drug Approved, published by WBII. Mr. Swit
holds an A.B., magna cum laude, with high honors in history, in 1979, from Bowdoin College, and
earned his law degree from Emory University in 1982. He is a member of the California, Virginia
and District of Columbia bars.
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