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Compliance Officers: Recent Regulatory Guidance and Enforcement Actions and Mitigating the Risk of Personal Liability
On July 18, 2019, a federal grand jury in Cincinnati indicted the former compliance officer of a pharmaceutical distributor, James Barclay, the pharmaceutical distributor, and others with conspiring to illegally distribute controlled substances. Among other things, the indictment alleged that Barclay, who was responsible for supervising the distributor's compliance with drug laws, and others sold millions of painkiller pills to pharmacies, while regularly exceeding the company's internal threshold limits and ignoring obvious signs of diversion and abuse. When the company's internal suspicious order monitoring system flagged many of these orders, Barclay and other defendants allegedly failed to conduct any due diligence or report the suspicious orders to the Drug Enforcement Administration (DEA), as required by law. The Barclay indictment was issued around three months after federal prosecutors in Manhattan brought felony criminal charges against a different drug distributor, its former Chief Compliance Officer (CCO), William Pietruszewski, and others on allegations that they opened new customer accounts without conducting due diligence and sold customers controlled substances despite knowing they were being distributed for illegitimate purposes. On April 19, 2019, Pietruszewski pleaded guilty to conspiracy to distribute controlled substances, conspiracy to defraud the U.S., and willful failure to file suspicious order reports with the DEA.
These high-profile criminal actions against compliance officers provide a powerful reminder that they remain in the crosshairs of U.S. law enforcement authorities. Although some government officials, such as Securities and Exchange Commission (SEC) Commissioner Hester Peirce, have indicated support for deferring to the judgment of compliance officers in most cases, recent government investigations and enforcement actions raise concerns about where regulators will draw the line.
This article, which is an update to our two-part article on compliance officer liability first published in March 2018 (see, http://bit.ly/2LRw0WN and http://bit.ly/2LUlApb), explores legal developments over the past year that may impact compliance officer personal liability. The article discusses U.S. regulators' continued emphasis on charging individuals in criminal and civil actions, recent enforcement actions against compliance officers for failure to maintain and implement adequate compliance programs and other conduct, and new laws and regulations that may impose additional responsibilities and personal liability risk on compliance officers. The article concludes by recommending steps compliances officers can take to limit their personal liability exposure.
U.S. Law Enforcement's Emphasis on Individual Accountability
Over the past several years, regulators have emphasized charging individuals in connection with alleged corporate wrongdoing rather than merely seeking large corporate fines. This focus on individual accountability impacts all corporate executives and, in particular, increases the risk of personal liability faced by compliance officers. In November 2018, former Deputy Attorney General Rod Rosenstein confirmed that the Department of Justice (DOJ) likely will continue this approach for the foreseeable future. In a speech given to the American Conference Institute, Rosenstein introduced modifications to the policy that then-Deputy Attorney General Sally Yates issued in September 2015, commonly known as the Yates Memo. The Yates Memo required companies to disclose "all relevant facts about the individuals involved in the alleged corporate misconduct" to qualify for any cooperation credit. Rosenstein stated that, under the revised policy, companies need only identify individuals who were "substantially involved in or responsible for the criminal conduct" to qualify for maximum cooperation credit.
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