Medical Device Manufacturer’s Settlement of Kickback Charges Shows That Even Criminal Fines Can Be “Privatized”

The U.S. Attorney for New Jersey directed that a no-bid 18-month contract worth $28 million to $52 million contract be awarded to The Ashcroft Group, the consulting firm of former Attorney General John Ashcroft, to monitor a large settlement of criminal accusations against medical device manufacturer Zimmer Holdings and four smaller companies accused of paying kickbacks to doctors who recommended and used the company’s knee and hip implants.

U.S. Attorney Christopher J. Christie directed that the contract be awarded to his former boss with no public notice. Mr. Christie said the fees were imposed in lieu of fines.

If that be so, the practical effect is to force companies prosecuted on taxpayers’ money to pay for their criminal acts not by compensating the taxpaying public, but by compensating those connected with the prosecutors.

In its filing with the Securities and Exchange Commission, Zimmer said it had agreed to pay the Ashcroft firm a monthly fee of $750,000, and to reimburse it for expenses that were expected to total $150,000 to $250,000 a month. As they say, nice work if you can get it.

The Ashcroft/Zimmer contract has prompted an internal inquiry into the department’s procedures for selecting outside monitors to police settlements with large companies. In addition, the chairmen of the House and Senate Judiciary Committees joined in asking the Justice Department on Thursday for details of contracts that the department directed to former Attorney General Ashcroft and other outside lawyers who are monitoring companies in out-of-court settlements of criminal allegations.

The New Jersey prosecutor directed similar monitoring contracts last year to two other former Justice Department colleagues from the Bush administration, as well as to a former Republican state attorney general in New Jersey.

The New York Times reports that in the Bush administration, federal prosecutors have increasingly relied on out-of-court settlements with large corporations in criminal investigations that in the past might have resulted in indictments and trials. The settlements often call for outside lawyers to be retained by the companies to monitor the agreements. The contracts call for the lawyers to monitor the company’s compliance with the settlements through financial audits and other types of internal investigations.

A new study by two Texas lawyers, Lawrence D. Finder and Ryan D. McConnell, found that the number of so-called deferred-prosecution or non-prosecution agreements between the department and large companies grew to 35 last year from 5 in 2003.

Under the settlements with the Justice Department, the companies negotiate the fees with the monitors themselves, a situation legal scholars say has the potential for abuse because companies might be overly generous to encourage leniency. The disclosure of the monitoring agreement, in which Mr. Ashcroft’s fees are paid directly by Zimmer, prompted Democratic lawmakers from New Jersey to question if the contract was new evidence of political favoritism in the Bush administration’s long-embattled Justice Department.

The result appears to be that those responsible for prosecuting illegal kickbacks in turn engage in kickbacks of their own. It’s a win-win for both: the company is spared adverse publicity that might ultimately expose it to an enormously expensive class action litigation from its victims, and the prosecutors perhaps set themselves up to be similarly treated in the future. One is left to wonder what the difference is between the conduct of the accused and that of the accusers.

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