Recent DOJ Settlements Reflect Post-Yates Trend in Holding Individuals Financially Accountable

In the wake of the Yates memo eighteen months ago, DOJ offered an early signal that its commitment to focus more on individual accountability would have bite:  alongside a $125 million settlement with Warner Chilcott, DOJ also indicted the former president of the company’s pharmaceutical division for conspiring to violate the Anti-Kickback Statute (discussed here).  Since then, the government suffered a speedy loss at his trial, and DOJ’s focus on individuals has not always been so overt.  However, two recent settlements highlight the imprint of the Yates memo, and in particular, a new trend of DOJ holding owners of closely held companies personally liable for FCA settlements.

DOJ has appeared especially inclined to hold individuals financially liable where corporate structures are such that personal finances were intertwined with allegedly ill-gotten gains.  Last week DOJ announced a settlement with eClinicalWorks (“eCW”), the manufacturer of an electronic medical records system. The press release notes that three individuals—all co-founders of eCW—would be held “jointly and severally liable” with the company for payment of the $155M settlement.  Yet DOJ’s complaint-in-intervention merely identifies these individuals as co-founders, without specifying their roles in the alleged misconduct.  Post-Yates memo, it has become more common for DOJ to announce settlements entered into by both a closely held company and its owner.  The largest example of this is DOJ’s settlement last year with Forrest Preston and Life Care Centers of America.  In its complaint against Preston, DOJ focused as much on Preston’s supposed awareness of the misconduct as it did on the fact that “Preston was the ultimate financial beneficiary of the proceeds of Life Care’s scheme.”

Financial penalties for individuals directly engaged in alleged misconduct but without a significant ownership stake in a settling corporation may be on the upswing as well.  Two lower-level eCW employees called out in DOJ’s complaint as directly involved in the misconduct will also pay modest fines, along with a third employee whose role in the alleged misconduct is unclear.  The day before announcing the eCW settlement, DOJ announced that the former Chief Operating Officer of a Medicare Advantage plan, Freedom Health, will pay $750,000 for his role in Freedom’s alleged misconduct.  The former COO does not appear to have an ownership stake in the health plan (although it is privately held), and the allegations in the relator’s complaint raise concerns as to potential individual misconduct.

This is an issue we will continue to monitor.