Business Crimes Hotline

Pursuant to the FDCA, a manufacturer must submit, and the Food and Drug Administration (FDA) must approve, a drug for a particular use or uses. It is a criminal violation to introduce a drug into interstate commerce for an unapproved use. Natrecor was approved by the FDA as an intravenous drug for acute patients with congestive heart failure and shortness of breath. Despite that limited approval, Scios had marketed Natrecor for serial use by chronic (i.e., non-acute) patients with congestive heart failure. At the same time as the plea, Judge Charles R. Breyer of the U.S. District Court for the Northern District of California sentenced Scios, ordering it to pay an $85 million criminal fine and serve three years of probation.

NEW YORK

Hedge Fund Boss Raj Rajaratnam Sentenced to 11 Years

On Oct. 13, 2011, U.S. District Judge Richard J. Holwell of the Southern District of New York sentenced Raj Rajaratnam to 11 years in prison and ordered him to pay a $10 million fine.

Rajaratnam had been the head of the Galleon Group hedge fund. He was arrested in October 2009 on allegations that he made millions as a result of insider trading, in a case that marked the government's first use of wire taps in insider-trading cases. Following a two-month trial, Rajaratnam was convicted on 14 counts of conspiracy and securities fraud.

At sentencing, the government sought a sentence of 19 to 24 years, while defense counsel argued that Rajaratnam should not serve a sentence of more than nine years. The judge took into account a number of factors, including Rajaratnam's charitable giving and his serious health problems, including his potential need for a kidney transplant. Judge Holwell ordered Rajaratnam to report within 45 days.

At Rajartnam's request, the judge recommended he be placed in the federal prison in Butner, NC, the same facility housing Bernard Madoff, but his ultimate location will be determined by the Bureau of Prisons.

Other Galleon Group employees and affiliates have already been sentenced. Although most received significantly shorter sentences, former Galleon trader Zvi Goffer was sentenced to 10 years in September.

Business Crimes Hotline and In the Courts were written by Associate Editors Kenneth S. Clark, and Matthew J. Alexander, respectively. Clark is a partner and Alexander is an associate at Kirkland & Ellis LLP, Washington, DC.

CALIFORNIA

Johnson & Johnson Subsidiary Pleads Guilty for Off-Label Promotion

On Oct 5, 2011, Freemont, CA-based Scios, Inc., a Johnson & Johnson subsidiary, pleaded guilty to a violation of the Food, Drug, and Cosmetic Act (FDCA), based on its off-label promotion of the heart failure drug Natrecor. The plea was part of a plea agreement entered between Scios and the Department of Justice (DOJ).

Pursuant to the FDCA, a manufacturer must submit, and the Food and Drug Administration (FDA) must approve, a drug for a particular use or uses. It is a criminal violation to introduce a drug into interstate commerce for an unapproved use. Natrecor was approved by the FDA as an intravenous drug for acute patients with congestive heart failure and shortness of breath. Despite that limited approval, Scios had marketed Natrecor for serial use by chronic (i.e., non-acute) patients with congestive heart failure. At the same time as the plea, Judge Charles R. Breyer of the U.S. District Court for the Northern District of California sentenced Scios, ordering it to pay an $85 million criminal fine and serve three years of probation.

NEW YORK

Hedge Fund Boss Raj Rajaratnam Sentenced to 11 Years

On Oct. 13, 2011, U.S. District Judge Richard J. Holwell of the Southern District of New York sentenced Raj Rajaratnam to 11 years in prison and ordered him to pay a $10 million fine.

Rajaratnam had been the head of the Galleon Group hedge fund. He was arrested in October 2009 on allegations that he made millions as a result of insider trading, in a case that marked the government's first use of wire taps in insider-trading cases. Following a two-month trial, Rajaratnam was convicted on 14 counts of conspiracy and securities fraud.

At sentencing, the government sought a sentence of 19 to 24 years, while defense counsel argued that Rajaratnam should not serve a sentence of more than nine years. The judge took into account a number of factors, including Rajaratnam's charitable giving and his serious health problems, including his potential need for a kidney transplant. Judge Holwell ordered Rajaratnam to report within 45 days.

At Rajartnam's request, the judge recommended he be placed in the federal prison in Butner, NC, the same facility housing Bernard Madoff, but his ultimate location will be determined by the Bureau of Prisons.

Other Galleon Group employees and affiliates have already been sentenced. Although most received significantly shorter sentences, former Galleon trader Zvi Goffer was sentenced to 10 years in September.

Business Crimes Hotline and In the Courts were written by Associate Editors Kenneth S. Clark, and Matthew J. Alexander, respectively. Clark is a partner and Alexander is an associate at Kirkland & Ellis LLP, Washington, DC.