Fraud Enforcement Adds Teeth by Pursuing Individuals Allegedly Responsible for Organizations’ Frauds

Last week the government’s criminal trial of former GlaxoSmithKline vice president and associate general counsel Lauren Stevens ended abruptly, as the judge found no basis to allow the case to go to a jury. Prosecutors had charged that she obstructed justice and made false statements to cover up the company’s improper marketing of the antidepressant drug Wellbutrin SR.

While she dodged a bullet, the case jolted lawyers handling health care fraud investigations, which are more typically civil cases under the False Claims Act.

Yet also last week, prosecutors succeeded in convicting Raj Rajaratnam for insider trading. Wall Street’s hedge fund industry took note of the government’s use of investigative tools such as recorded phone calls.

Jury selection begins today in the trial of Zfi Goffer, his brother Emanuel Goffer, and securities trader Michael Kimelman, on charges of securities fraud and conspiracy. More than one lawyer at a white-shoe firm was ensnared in this investigation and pleaded guilty.

Writers at the Wall Street Journal blog correctly observed recently that the federal government–after years of targeting primarily companies engaged in fraud–has turned to pursuing individuals allegedly responsible for corporate fraud.

In egregious cases–especially those involving falsifying or concealing evidence–individuals now face criminal prosecution more frequently. Even if the person escapes prosecution, exclusion and debarment of individuals who had responsibility over their companies’ fraud is a growing trend.

Fraud hurts taxpayers and investors. If sanctioning the company is seen as just a “cost of doing business,” it is a logical step for the government to pursue those individuals who direct fraud.