Sep 72012

Federal Judge Rejects Proposed Settlement of Medicaid Investigation

Scott D. Stein
,

According to an article in yesterday’s Bloomberg News, a federal district judge has rejected a proposed guilty plea by Orthofix International NV in connection with a long-standing civil and criminal investigation of alleged false claims relating to the alleged payment of kickbacks to doctors and off-label use of bone-repair products.

Orthofix previously agreed to pay a $34.2 million settlement of civil qui tam claims based on alleged kickbacks to physicians, and five individual Orthofix employees have pleaded guilty to various criminal violations, including violations of the Anti-Kickback Statute. According to the article, Orthofix was prepared to plead guilty to a felony count of obstructing a government audit and to pay a $7.8 million fine. But Judge William Young of the District of Massachusetts rejected the proposed plea on the ground that it unduly restricted his sentencing power, stating that he had “extreme unease of treating corporate criminal conduct like a civil case.”

It remains unclear what impact if any the court’s rejection of the criminal plea will have on the proposed civil settlement, or how the parties plan to address the Court’s concerns. But the development is noteworthy in light of the controversy earlier this year regarding another district court’s rejection of a civil settlement between the SEC and a defendant based on concerns that it was too lenient. It remains to be seen whether Judge Young’s rejection of the proposed Orthofix settlement is an aberration, or evidence that the willingness of judges to take a closer look at settlements of corporate fraud allegations in the securities context may be extending to other courts and contexts.

Scott D. Stein

Chicago

sstein@sidley.com

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