Last week, Laurence Doud III (Doud), the 78-year-old former CEO of Rochester Drug Cooperative (RDC), was convicted in the U.S. District Court for the Southern District of New York on criminal charges of conspiracy to unlawfully distribute opioids under the Controlled Substances Act (CSA), as well as conspiracy to defraud the Drug Enforcement Administration (DEA).1 Doud’s conviction under the CSA, a statute primarily used over the last five decades to prosecute street drug dealers and other major narcotics traffickers, carries a mandatory minimum sentence of 10 years of imprisonment and a maximum sentence of life.
The government’s successful prosecution of Doud for narcotics distribution conspiracy under the CSA is noteworthy as it represents the intersection—and a dramatic escalation—of two key Department of Justice (DOJ) enforcement trends: seeking individual accountability for corporate wrongdoing2 and the pursuit of novel theories of liability to pursue “both criminal and civil actions against wrongdoing entities and individuals up and down the prescription opioid supply chain.”3 Doud is an important reminder for corporate management to take action when compliance programs identify signals of risk.
The Doud Prosecution and Conviction
On April 23, 2019, DOJ announced charges against RDC, Doud, and RDC’s former chief compliance officer. DOJ accused Doud of “suppl[ying] tens of millions of oxycodone, fentanyl, and other dangerous opioids to pharmacy customers that [RDC’s] own compliance personnel determine[d], and reported to Doud, were dispensing those drugs to individuals who had no legitimate medical need for them.”4 The indictment focused on the suspect ordering patterns of customers that the government alleged RDC ignored, including: “‘[d]ispensing highly-abused controlled substances’ in large quantities, purchasing ‘only controlled substances and little else,’ . . . ‘[a]ccepting a high percentage of cash from patients,’ ‘[d]ispensing to out-of-area or out-of-state patients,’ and ‘[f]illing controlled substance prescriptions issued by practitioners acting outside the scope of their medical practice or specialty.’”5 The indictment also highlighted RDC’s failure to conduct diligence on potential customers as part of a sound compliance program.6 Despite being warned by RDC’s compliance and legal personnel about these “red flags” and the risks under the CSA, DOJ alleged Doud dismissed the concerns and directed the continued shipment of “large quantities” of opioids.7
Doud moved to dismiss the indictment, arguing that the CSA did not apply to his conduct and that his conduct amounted to, at most, regulatory violations that warranted far lesser penalties. Judge George B. Daniels denied Doud’s motion, citing to Supreme Court precedent that the CSA “reaches ‘any person,’ including ‘manufacturers, wholesalers, retailers, and all others in the legitimate distribution [chain].’”8 The jury convicted Doud following a two-week trial, and he is set to be sentenced on June 29, 2022.9
U.S. v. Doud Demonstrates DOJ’s Continued Commitment to Individual Liability
DOJ historically has pursued individual liability against corporate executives under a variety of legal theories, depending on the industry. For example, executives of life sciences companies have been successfully prosecuted for misdemeanor violations of the Federal Food, Drug, and Cosmetic Act (“FDCA”) under a theory of liability that enables the government to seek criminal penalties without satisfying ordinary mens rea requirements.10 In this way, the government effectively has sought to hold life sciences executives criminally responsible for violations of the FDCA by the corporation.11 The “responsible corporate officer” doctrine was later extended to violations of other regulatory regimes.12 But, again, executives convicted under this approach faced only misdemeanor consequences—meaning any term of imprisonment imposed generally could not exceed one year.
Over time, DOJ increased its focus on pursuing more frequent—and more serious—individual liability against corporate executives, culminating in then-Deputy Attorney General Sally Yates’s 2015 memorandum, “Individual Accountability for Corporate Wrongdoing” (Yates Memo).13 The Yates Memo noted that “[o]ne of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing.”14 Among the noted policy amendments were directives for “criminal and civil investigators [to] focus on individuals from the inception of the investigation,” and an admonition to prosecutors not to “release culpable individuals from civil or criminal liability when resolving a matter with the corporation.”15 In November 2018, then-Deputy Attorney General Rod Rosenstein affirmed DOJ’s commitment to prosecuting individuals for corporate wrongdoing, but at the same time limited the disclosures required for companies to obtain full cooperation credit to the conduct of individuals who were “substantially involved” in the wrongdoing.16 In 2021, current Deputy Attorney General Lisa Monaco reversed the Rosenstein position and recommitted DOJ to the pursuit of charges against individuals at all levels of involvement, “making clear that to be eligible for any cooperation credit, companies must . . . identify all individuals involved in the misconduct, regardless of their position, status or seniority.”17
This focus on pursuing individual liability has continued to increase in recent years. For example, in 2019 the former chairman of pharmaceutical manufacturer Insys was convicted, along with four other executives, of a racketeering conspiracy related to the alleged payment of bribes to healthcare professionals to induce them to prescribe the company’s fentanyl product. He was later sentenced to five and a half years in prison.18
Now, DOJ has successfully prosecuted Doud under the CSA, pursuing liability against a corporate executive with a statute carrying a 10-year mandatory minimum sentence for a conviction on the top count—meaning the sentencing judge has no power or discretion to impose a prison term of less than 10 years. Such powerful prosecutorial tools were previously reserved for serious street-drug dealers. Moreover, a prisoner sentenced to a term of 10 years or more may not be eligible to serve that time in a minimum security “camp,” typically reserved for the lowest-level inmates, but might be required to serve at least a portion of the term in a higher-security federal correctional institution.
Doud Reflects a Novel Application of the Controlled Substances Act
Doud’s conviction similarly reaffirms DOJ’s stated commitment to “us[e] every available tool to prevent overdose deaths and hold accountable those responsible for the opioid crisis.”19 Doud’s prosecution for participating in a narcotics distribution conspiracy under the CSA is a notable escalation of the trend.
For decades, federal prosecutors have relied on a broad interpretation of “distribution” under the CSA. The overwhelming majority of prosecutions under the CSA, however, have been of street drug dealers, along with a much smaller number of individual licensed pharmacists and doctors.20 In this regard, Doud’s prosecution marks a unique watershed. Indeed, in announcing the charges against Doud and RDC’s chief compliance officer in 2019, the U.S. Attorney for the Southern District of New York proclaimed the indictment to be “the first of its kind” in extending the reach of the CSA from “street-level dealers to the executives who illegally distribute drugs from their boardrooms.”21
Doud’s prosecution was consistent with DOJ’s aggressive efforts to hold accountable those individuals and entities it perceives to be part of the opioid supply chain, particularly in the wake of DOJ’s Office of Inspector General determining that “DEA was slow to respond to the significant increase in the use and diversion of opioids since 2000.”22 Such enforcement efforts began with actions focused on physicians who allegedly prescribed opioids in a manner that fell outside the usual course of professional practice, as well as individual pharmacies allegedly operating as “pill mills” without regard to patient need, before expanding to pharmacy chains and distributors accused of having inadequate controls, and ultimately to opioid manufacturers.
Some of the government’s prior attempts to pursue CSA liability against companies in the opioid distribution chain—like RDC—were dismissed for failure to prove the required element of knowledge or intent. In 2014, for example, a major common carrier was charged under the CSA for conspiracy to distribute controlled substances based on allegations that it transported shipments for illegal online pharmacies; but the government ultimately dismissed the case over concerns that it would not be able to prove intent. In Doud’s case, however, the government successfully prosecuted a corporate executive under a statute requiring proof of scienter. At trial, federal prosecutors relied on evidence of Doud’s failure to respond to red flags to prove that Doud “knowingly or intentionally” distributed controlled substances in violation of the CSA.23
DOJ’s approach has implications for companies across sectors, including online retailers, financial services companies, shipping and delivery companies, and social media platforms, despite arguments that they are not “distributors” as defined by the CSA. To the extent that such companies and their employees have access to data that may reveal the sales or movement of controlled substances or their components—and therefore access to red flags that may be associated with such goods or activities—they should carefully evaluate whether their activities may bring them within the scope of the CSA.
The Take-Home Messages
There are three take-home messages from Doud’s conviction. First, companies should assess whether their business may be subject to application of the CSA or other statutory or regulatory regimes that carry with them criminal consequences for noncompliance. Particularly where companies provide services that may touch upon the opioid distribution chain, compliance and legal organizations need to understand the data to which their companies have access and how those data may be cited by prosecutors as evidence that the company and/or corporate executives were on notice of potentially illegal conduct. Employees should be trained with an emphasis on what would indicate a red flag and how to take the appropriate actions when any red flag is identified.
Second, compliance departments should be encouraged to update and revisit training on individual liability in such affected industries. Such training should alert employees to the potentially severe criminal consequences of noncompliance and should provide employees with the appropriate avenues to report concerns—including direct lines to boards of directors when senior executives are involved.
Third, boards of directors should ensure that their business has evaluated its risk under key regulatory regimes and that reporting processes are in place to ensure that information related to significant risk and potential noncompliance by management will be appropriately escalated.
1 Laurence Doud, Former CEO Of Pharmaceutical Distributor, Convicted Of Conspiring To Distribute Controlled Substances And Defrauding The DEA, USDOJ (Feb. 2, 2022), https://www.justice.gov/usao-sdny/pr/laurence-doud-former-ceo-pharmaceutical-distributor-convicted-conspiring-distribute.
2 Deputy Attorney General Lisa O. Monaco, Keynote Address at ABA’s 36th National Institute on White
Collar Crime Washington, USDOJ (Oct. 28, 2021) https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-o-monaco-gives-keynote-address-abas-36th-national-institute.
3 Opioid Enforcement Effort, Consumer Protection Branch, USDOJ, https://www.justice.gov/civil/consumer-protection-branch/opioid (last visited Feb. 9, 2022).
4 Doud Indictment at ¶ 3, https://www.justice.gov/usao-sdny/press-release/file/1156386/download.
5 Id. at ¶ 14. Similarly, the government noted that “[b]y 2014, RDC observed that over sixty percent of the prescriptions filled by [one pharmacy customer] were paid for in cash and nearly all cash-paying patients were traveling to the pharmacy from out of state.”
6 Id. at ¶ 18 (alleging “in 2012, [RDC] began supplying a pharmacy that admitted it did not do any due diligence on its opioid prescriptions”).
7 Id. at ¶ 15 (“When employees did, in fact, notify Doud that they were troubled by the large quantities of controlled substances being purchased by some of the Company’s customers, Doud dismissed the concerns and rarely authorized the termination of business with the customers.”).
8 United States v. Doud, No. 19 CR. 285 (GBD), 2022 WL 47233, at *2 (S.D.N.Y. Jan. 5, 2022) (citing United States v. Moore, 423 U.S. 122, 131 (1975)).
9 Laurence Doud, Former CEO Of Pharmaceutical Distributor, Convicted Of Conspiring To Distribute Controlled Substances And Defrauding The DEA, USDOJ (Feb. 2, 2022), https://www.justice.gov/opa/pr/justice-department-announces-global-resolution-criminal-and-civil-investigations-opioid.
10 The Supreme Court first affirmed the conviction of a drug company’s president for misdemeanor misbranding under a strict liability standard in United States v. Dotterweich, 320 U.S. 277, 280-81 (1943) (“[T]he Prosecution to which Dotterweich was subjected is based on a now familiar type of legislation whereby penalties serve as effective means of regulation. Such legislation dispenses with the conventional requirement for criminal conduct—awareness of some wrongdoing. In the interest of the larger good it puts the burden of acting at hazard upon a person otherwise innocent but standing in responsible relation to public danger.”). The Court later affirmed and clarified this approach to prosecutions under the FDCA in United States v. Park, 421 U.S. 658, 658-59 (1975) (holding the FDCA “imposes upon persons exercising authority and supervisory responsibility reposed in them by a business organization not only a positive duty to seek out and remedy violations, but also and primarily, a duty to implement measures that will insure that violations will not occur.”) (citing Dotterweich, supra).
11 See, e.g., Dotterweich, 320 U.S. 277; Former Drug Company Executive Pleads Guilty in Oversized Drug Tablets Case, USDOJ (Mar. 10, 2011), https://www.justice.gov/opa/pr/former-drug-company-executive-pleads-guilty-oversized-drug-tablets-case; Former Executives of International Medical Device Maker Sentenced to Prison in Unlawful Clinical Trials Case, USDOJ (Nov. 21, 2011), https://www.justice.gov/archive/usao/pae/News/2011/Nov/synthesexecs_release.pdf; Former Acclarent, Inc. Executives Convicted of Crimes Related to the Sale of Medical Devices, USDOJ (July 20, 2016), https://www.justice.gov/usao-ma/pr/former-acclarent-inc-executives-convicted-crimes-related-sale-medical-devices; Suboxone Manufacturer Invidior’s Former Chief Executive Officer Sentenced to Jail Time in Connection with Drug Safety Claims, USDOJ (Oct. 22, 2020), https://www.justice.gov/usao-wdva/pr/suboxone-manufacturer-indiviors-former-chief-executive-officer-sentenced-jail-time.
12 See, e.g., United States v. Wise, 370 U.S. 409 (1961) (applying Dotterweich to a violation of Section One of the Sherman Act); United States v. Johnson & Towers, Inc., 741 F.2d 662, 664 (3d Cir. 1984) (extending it to violations of a permitting provision of the Resource Conservation and Recovery Act (RCRA)); United States v. Brittain, 931 F.2d 1413, 1419 (extending it to the concept of a “responsible corporate officer” under the Clean Water Act).
13 Memorandum from Sally Yates, Individual Accountability for Corporate Wrongdoing (Sept. 9, 2015), https://www.justice.gov/archives/dag/file/769036/download.
14 Id. at 1.
15 Id. at 2.
16 Deputy Attorney General Rod J. Rosenstein Delivers Remarks at the American Conference Institute’s 35th International Conference on the Foreign Corrupt Practices Act, USDOJ (Nov. 29, 2018), https://www.justice.gov/opa/speech/deputy-attorney-general-rod-j-rosenstein-delivers-remarks-american-conference-institute-0.
17 Deputy Attorney General Lisa O. Monaco Gives Keynote Address at ABA’s 36th National Institute on White Collar Crime, USDOJ (Oct. 28, 2021), https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-o-monaco-gives-keynote-address-abas-36th-national-institute.
18 See Founder and Former Chairman of the Board of Insys Therapeutics Sentenced to 66 Months in Prison, USDOJ (Jan. 23, 2020), https://www.justice.gov/usao-ma/pr/founder-and-former-chairman-board-insys-therapeutics-sentenced-66-months-prison.
19 Opioid Enforcement Effort, https://www.justice.gov/civil/consumer-protection-branch/opioid.
20 See, e.g., United States v. Brodwin, et al., 292 F. Supp. 2d 484 (S.D.N.Y. 2003); United States v. Cortes-Caban, 691 F.3d 1 (1st Cir. 2012); United States v. Swinton et al, 19-cr-065 (D. Conn. Feb. 3. 2022).
21 Manhattan U.S. Attorney and DEA Announce Charges Against Rochester Drug Co-Operative and Two Executives for Unlawfully Distributing Controlled Substances, USDOJ (Apr. 23, 2019), https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-and-dea-announce-charges-against-rochester-drug-co-operative-and.
22 Office of the Inspector General, U.S. Department of Justice, Review of the Drug Enforcement Administration’s Regulatory and Enforcement Efforts to Control the Diversion of Opioids, 19-05 (Sept. 2019).
23 21 U.S.C. § 841.
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