Opioid manufacturers, distributors, pharmacies and prescribers are facing a deluge of lawsuits that involve criminal and civil claims in both federal and state courts. On May 2, 2019, a federal jury in Boston, Massachusetts, found John Kapoor, the self-made billionaire and founder of Insys Pharmaceuticals, along with four other executives, guilty of RICO conspiracy for their roles in Insys’ scheme to bribe medical practitioners and defraud Medicare and private insurance carriers. The verdict followed a 10-week trial during which jurors heard testimony concerning the plan Insys employed to market Subsys, a highly powerful fentanyl spray. Kapoor and his former colleagues are scheduled to be sentenced in September. Each defendant faces to up to 20 years in prison for their crimes.
The fallout for Insys did not end with these convictions. On June 5, 2019, Insys agreed to pay $225 million dollars, plead guilty to five counts of mail fraud and admit violations of the False Claims Act to settle civil and criminal federal investigations into the Subsys scheme. The Department of Justice (DOJ) celebrated the settlement as a major victory. However, the celebration was short-lived: The government will likely recover only a fraction of the settlement amount. On June 10, 2019, Insys filed for Chapter 11 bankruptcy protection in which the company declared assets worth $175 million and debts of $262 million. This marks the first time a pharmaceutical company has filed bankruptcy because of opioid-related litigation costs.
The pharmaceutical industry, private attorneys and prosecutors are closely watching the opioid litigation playing out in forums across the country. Plaintiffs’ lawyers are fond of drawing comparisons between the opioid litigation and the tobacco litigation in the 1990s in which tobacco companies were spurred to accept the largest civil litigation settlement in history, in the very early stages of the proceedings. Yet, there is a major problem in comparing opioids with tobacco: Few doctors would dispute that opioids are “essential medication, the most effective drugs for the relief of pain and suffering.”
The necessity of these drugs and the flood of recent litigation over their abuse have raised many legal questions concerning the roles of industry members and the judicial system. Where is the line between marketing and racketeering? Between physician education and bribery? Are the recent headlines signs of a future uptick in criminal and civil prosecutions against corporations? What about against individual executives? This article explores the criminal and civil liability involved in the Insys scandal and the implications for the pharmaceutical industry in an age where prescription opioids are not going anywhere.
INSYS THERAPEUTICS AND SUBSYS
John Kapoor, now 74, founded Insys in 2002. Kapoor was already extremely wealthy, and he personally bankrolled Insys for years before Subsys was approved by the FDA in early 2012. Subsys belongs to a class of fentanyl products known as TIRF drugs, which have been approved by the FDA exclusively for use by adult cancer patients who are already receiving around-the-clock opioid therapy and are experiencing “breakthrough” pain. TIRF drugs are incredibly valuable and necessary to those patients with extreme pain. They also happen to be lucrative—a single patient taking Subsys could produce up to $19,000 in revenue per month.
When Subsys launched in 2012, the Insys board, led by Kapoor, selected Michael Babich, a thirty-six-year-old with negligible industry experience, to serve as CEO. Kapoor was disappointed reportedly with the sales of Subsys during its first months on the market, and there was high turnover of sales personnel, who were also almost all young and inexperienced. To resolve these problems, Babich brought in Alec Burlakoff. Burlakoff had experience in the industry, but his previous sales tactics had led him into trouble. In 2002, the Florida Attorney General’s Office investigated him for mailing unsolicited pills to potential consumers. He was thereafter fired by his employer, Eli Lilly, whom Burlakoff then sued, claiming the plan was orchestrated by management.
With Burlakoff at the wheel, Insys quickly ramped up its sales efforts, including its now-infamous “speaker program.” Only high-volume opioid prescribers, referred to by Insys sales representatives as “whales,” were recruited to participate in the speaker program. Top prescribers of Subsys were paid four figures to speak over fancy dinners to audiences of their friends and family, none of whom were qualified to become prescribers themselves. At least one whale even received a lap dance from an Insys sales representative in an attempt to secure him as a speaker. Insys quadrupled the budget for the speaker program to more than $10 million by 2014. Prosecutors would later present evidence that the Insys executives had even calculated the potential return on investment for each of the speakers. Burlakoff also encouraged sales representatives to push doctors into prescribing higher doses of Subsys than the recommended, on-label dose of 100 mcg. Sales representatives were threatened through emails with “immediate negative consequences” if they failed to comply with his orders. Fortunately for prosecutors, top executives, including Kapoor, were copied on these emails.
Burlakoff and Babich eventually struck deals to testify against Kapoor and their former colleagues, which resulted in some of the most powerful testimony for prosecutors. According to Burlakoff, Insys was “up front” with doctors about the bribery scheme, and Kapoor would regularly ask interviewees whether they preferred “loyalty” or “integrity” to determine whether they would be willing to “go along with our scheme to bribe doctors to prescribe Subsys.”
Subsys sales skyrocketed from $8.6 million in 2012 to $329 million in 2015. In 2013, Insys went public—resulting in the best performing IPO of the year. However, Insys executives faced a major hurdle in their efforts to promote Subsys prescriptions for non-cancer patients: Insurance companies would not cover Subsys unless it was prescribed for on-label use. Moreover, wholesalers and pharmacies were required by the DEA to report suspicious orders. Thus, Insys resolved to make it look like the prescriptions were being written for cancer patients and to bribe pharmacies and distributors to go along with the plan.
Insys developed a multi-pronged approach to address this problem. For the “most valuable” prescribers, Insys hired “Area Business Liaisons” to work on obtaining authorizations from within the provider’s office. Area business liaisons, who were often relatives and friends of the provider, were bankrolled by Insys to obtain final authorization for payment for Subsys prescriptions from insurance companies, Medicare and Medicaid. Meanwhile, Insys employees in the “reimbursement center” worked to ensure prior and final authorization by contacting payors directly. Practitioners who used the reimbursement center were required to fill out forms to opt in, and they provided information about patients that was confidential. Callers in the reimbursement center contacted insurance companies and falsely represented that they worked in a provider’s office. Then, they lied about the medical history and diagnoses of patients so that payors would approve payment for Subsys, even though it had been prescribed for off-label use. When representatives from the insurance companies would inquire further about the employment status of the Insys callers, the Insys callers were instructed to hang up the phone and try to call again later—in hopes that someone less suspicious would answer.
Insys also worked with pharmacies to circumvent DEA reporting requirements for controlled substances. One way that Insys tried to avoid triggering DEA suspicion was by constantly using new wholesalers. By changing the distribution chain, they were able to access wholesalers who were unaware of previous ordering patterns and willing to distribute more Subsys than the previous wholesaler. Eventually, Insys cut out the middleman entirely by shipping Subsys directly to pharmacies that were willing to bypass DEA requirements to buy Subsys at a discounted price and increase their own profits. Participating pharmacies signed retail agreements with Insys that required them to make payments directly to the company rather than to a wholesaler.
Clearly, many of the actions of Insys executives stand out as extreme departures from legal and acceptable behavior. Their willingness to discuss their illegal actions openly in emails, texts and marketing materials also sets them apart. At trial, prosecutors played a rap video in which Burlakoff is dancing, dressed up as a Subsys bottle—with the highest possible dose. As discussed in greater detail below, the copious evidence against the defendants allowed prosecutors to bury them at trial.
The Insys Trial
It doesn’t take a law degree to know that the actions of the Insys executives were brazenly illegal. The following section explains why their conduct made it possible for prosecutors to hold them individually, criminally accountable.
RICO, an intentionally broad statute, is designed to provide a tool against a wide array of organized crime.To prove RICO conspiracy, the government must prove the defendant: (1) through the commission of two or more acts; (2) engaged in a “racketeering activity” (i.e., violated a qualifying federal or state law); (3) by directly or indirectly investing in, maintaining an interest in or participating in an enterprise (e.g., a business); (4) the activities of which affected interstate or foreign commerce.” Conspiracy is sometimes referred to as an inchoate, or incomplete crime, because a defendant may not be found guilty of the completed offense but may still be found guilty of conspiracy—so long as there is proof of their intentional involvement in a plan to commit the crime. The Anti-Kickback Statute punishes individuals in the healthcare industry who offer bribes to healthcare providers to arrange for medical services that will be paid for by a federal healthcare program, including Medicare and Medicaid. The Insys defendants were also charged under the mail and wire fraud statutes, which prohibit schemes developed to obtain money or property by means of “false or fraudulent pretenses, representations or promises” over the mail system or wires.
Prosecutors were able to establish RICO conspiracy based upon several underlying crimes or “racketeering activities,” including drug distribution, mail and wire fraud, breach of the duty of honest services and bribery. They were also able to establish violations of the Anti-Kickback Statute. As discussed above, Insys offered a creative array of bribes to its “speakers” for writing Subsys prescriptions, including compensation, lap dances, area business liaisons and fancy dinners. These bribes violated, inter alia, the Controlled Substance Act and state fraud statutes, which can both support a RICO claim. Insys executives regularly conducted their illegal activities using emails and texts, thus implicating the wire fraud statute. These communications, which clearly crossed the desk of Kapoor and other top executives, made it possible for prosecutors to prove they participated in the conspiracy. Insys executives also committed wire fraud by setting up the “reimbursement center” to contact insurance companies directly and to say whatever was necessary to gain authorization for payment. They committed mail fraud by bypassing distributors and sending Subsys directly to pharmacies.
The well-documented, egregious conduct of the Insys executives sets their case apart from previous cases involving executive misconduct in the pharmaceutical industry. Prosecutors have celebrated their case against the executives as a great success and have vowed to continue to hold executives individually liable for wrongful conduct.,  However, events since the trial may compel prosecutors to pause before throwing the book at executives in the future.
Settlement and Bankruptcy
On June 5, 2019, the U.S. Attorney’s Office released news that a settlement had been reached with the operating subsidiary of Insys, including payment of a $2 million fine, a $28 million forfeiture, and payment of $195 million to settle False Claims Act allegations.
Just five days after agreeing to the settlement, Insys filed for Chapter 11 bankruptcy protection. In addition to this settlement, Insys still faced over 1,000 lawsuits, including 10 filed by state attorneys general. It remains unclear how much of this settlement the government will ever see.
PUBLIC NUISANCE LITIGATION
William Prosser, the leading authority of his generation on tort law, famously blasted nuisance law as a “legal garbage can,” opining, “there is perhaps no more impenetrable jungle in the entire law than that which surrounds the word ‘nuisance.’ It has meant all things to all people, and has been applied indiscriminately to everything from an alarming advertisement to a cockroach in a baked pie.”
Some prosecutors and plaintiff attorneys use the age-old legal garbage can in pursuit of recovery. Public nuisance theory has been criticized widely because of its vagueness, unpredictability and tendency to compel a judge to step into the shoes of a legislator. Despite this criticism from the bench and the bar, attempts have been made to expand this theory into opioid litigation. This is by no means the first time plaintiffs have attempted to expand public nuisance law, which has historically been used to address harms such as toxic fumes, water pollution and bright lights from stadiums. Plaintiff lawyers who are active in the opioid litigation have drawn comparisons to the successful strategy employed to compel enormous settlements from the tobacco companies in the 1990s based on such theories. The settlements were obtained even though no tobacco case was ever brought to trial on a public nuisance theory.
The Eighth Circuit rejected a public nuisance claim when plaintiffs attempted to apply it to a manufacturer of cold medicine containing ephedrine, based upon the manufacturer’s alleged failure to prevent criminals from using the medication to make methamphetamine. The court reasoned that the independent criminal actions of the methamphetamine cooks caused the injury and stated that it was “reluctant to open Pandora’s Box to the avalanche of actions that would follow if we found this case to state a cause of action.”
DEPARTMENT OF JUSTICE POLICY SHIFTS
A brief review of shifting DOJ policy helps elucidate the course of the DOJ’s role in the opioid litigation thus far and may assist those in the industry in making predictions concerning the likelihood of civil and criminal actions against pharmaceutical manufacturers, distributers, pharmacies and individual doctors. On September 5, 2015, Sally Yates, the deputy attorney general, issued a policy announcement now known as the Yates Memorandum on the subject of civil and criminal “Individual Accountability for Corporate Wrongdoing.” The memorandum announced a shifting emphasis from corporate to individual prosecution, stating: “One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing.” With respect to both criminal and civil suits, the policy imposed a “condition of cooperation,” which mandated that a company identify “all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority, and provide to the Department all facts relating to the misconduct,” or its cooperation would not be considered a mitigating factor for sentencing or settlement amounts. The policy also announced that considerable deference has been removed from civil attorneys at DOJ: “Absent extraordinary circumstances,” department lawyers are no longer permitted to agree to corporate resolutions that provide immunity to individual officers or employees. Moreover, attorneys are not permitted to consider an individual officer’s ability to pay when determining whether to pursue action against him or her.
However, the Yates Memorandum did not have the intended effect and has since been largely walked back. On November 29, 2018, Deputy Attorney General Rod Rosenstein highlighted the failures of the Yates Memorandum policies. Rosenstein announced that the DOJ would shift away from duplicative prosecutions, stating: “It is important to punish wrongdoers. But we should discourage the sort of disproportionate and inefficient enforcement that can result if multiple authorities repeatedly pursue the same violator for the same misconduct.” He also highlighted the unfair effects that prosecutions can have on employees and shareholders.
Moreover, Rosenstein indicated that the focus of investigations would be on top officials going forward, and a company must only identify the individuals who were “substantially involved,” in order to qualify for cooperation credit. He also restored discretion to the civil DOJ attorneys to close a case without investigating every employee, to negotiate civil releases for individuals who will not be prosecuted criminally and to consider an individual’s ability to pay in deciding whether to pursue a civil judgment. Rosenstein stated, “We generally do not want attorneys to spend time pursuing civil litigation that is unlikely to yield any benefit; not while other worthy cases are competing for our attention.”
POSSIBLE TRENDS Q&A
Will there be additional criminal prosecutions of pharmaceutical executives?
There may be some, but it is unlikely we will see widespread criminal prosecutions against individuals. The DOJ has indicated it plans to focus its limited resources on catching the biggest fish. Per Rosenstein: “We want to focus on the individuals who play significant roles in setting a company on a course of criminal conduct. We want to know who authorized the misconduct, and what they knew about it.” However, he also admitted: “Our policies need to work in the real world of limited investigative resources.”
The Insys trial lasted 10 weeks, and the jury deliberated for 15 days. The government spent considerable resources pursuing the criminal case against those individuals. The DOJ recognizes that it is important to hold individuals accountable, but it is also important to recover resources to put toward solutions. Only one of these goals was achieved with Insys because the criminal prosecution destroyed the company.
Does AG litigation pose an existential threat to pharmaceutical companies?
It depends on the company. Obviously, the conduct of the company is the most important factor. Size also matters because the more dispersed the company structure, the harder it will be to establish claims such as those based upon RICO. Insys was unusual, in part, because top executives were copied on multiple highly incriminating emails and could not plead ignorance to the actions of their subordinates.
Moreover, the DOJ has evidenced a policy shift that supports a more moderate approach to enforcement efforts to mitigate the unfair effects on innocent shareholders and employees.
Should we expect to see an uptick in civil litigation, criminal suits or both?
Unfortunately, the kind of misconduct featured in the Insys
case can negatively color public perception of the industry as a whole—and
capture the attention of prosecutors. But that misconduct was an outlier, not
the norm. Illegal conduct warrants prosecution, but the Insys result should not
be read as a red flag for good corporate citizens in this sector. On the civil
side, plaintiffs’ lawyers typically file suits where there is a reasonable
chance of recovery. To that end, companies facing bankruptcy amid government
prosecution provide long odds for pragmatic plaintiffs. So, it’s difficult to
see these types of actions paired together going forward to any increased
degree of frequency.
 See Founder and Four Executives of Insys Therapeutics Convicted of Racketeering Conspiracy, U.S. Dep’t of Justice (May 2, 2019), https://www.justice.gov/usao-ma/pr/founder-and-four-executives-insys-therapeutics-convicted-racketeering-conspiracy; Taylor Telford, Insys becomes first drugmaker to file for bankruptcy to cover opioid penalties, Washington Post (June 10, 2019), https://www.washingtonpost.com/business/2019/06/10/insys-becomes-first-drugmaker-file-bankruptcy-cover-opioid-penalties/.
 See Telford, supra note 1.
 United States v. Michael Babich, Alec Burlakoff, Richard Simon, Sunrise Lee, Joseph Rowan, and Michael Gurry, John Kapoor, Docket 16-cr-10343-ADB, https://www.justice.gov/usao-ma/victim-and-witness-assistance-program/united-states-v-michael-babich-alec-burlakoff-richard-simon-sunrise-lee-joseph-rowan-and.
 See Opioid Manufacturer Insys Therapeutics Agrees to Enter $225 Million Global Resolution of Criminal and Civil Investigations, U.S. Dep’t of Justice (June 5, 2019), https://www.justice.gov/opa/pr/opioid-manufacturer-insys-therapeutics-agrees-enter-225-million-global-resolution-criminal.
 See Robert Field & Vincent Buccola, Opioid Settlements: Why Insys Is the Tip of the Iceberg, Knowledge@Wharton (June 18, 2019), https://knowledge.wharton.upenn.edu/article/opiod-settlements-is-insys-the-tip-of-the-iceberg/.
 James K. Holder, Opening the Door Wider? Opioid Litigation and the Scope of Public Nuisance Law, 13 No. 2, In-House Def. Q. 33 (2018).
 Andrew Rosenblum, et al., Opioids and the Treatment of Chronic Pain: Controversies, Current Status, and Future Directions, J. Experimental & Clinical Psychopharmacology (2008).
 See Matthew Herper, An Opioid Spray Showered Billionaire John Kapoor In Riches. Now He’s Feeling The Pain, Forbes (October 25, 2016), https://www.forbes.com/sites/matthewherper/2016/10/04/death-kickbacks-and-a-billionaire-the-story-of-a-dangerous-opioid/.
 See Evan Hughes, The Pain Hustlers, New York Times (May 2, 2019), https://www.nytimes.com/interactive/2018/05/02/magazine/money-issue-insys-opioids-kickbacks.html.
 See Opioid Manufacturer Insys Therapeutics Agrees to Enter $225 Million Global Resolution of Criminal and Civil Investigations, supra note 4.
 Chris Villani, Ex-Insys Execs Found Guilty in RICO Opioid Bribe Scheme, Law360 (May 2, 2019, 2:42 PM EDT), https://www.law360.com/articles/1148719/ex-insys-execs-found-guilty-in-rico-opioid-bribe-scheme.
 See Herper, supra note 12.
 See Hughes, supra note 13.
 Alexandria Hein, Former stripper-turned-drug exec gave doctor lap dance while pitching painkiller, witness testifies, Fox News (January 30, 2019), https://www.foxnews.com/us/former-stripper-turned-drug-exec-gave-doctor-lap-dance-while-pitching-painkiller-witness-testifies.
 Indictment, ¶ 64.
 See Hughes, supra note 13.
 Indictment, ¶ 81.
 Id. at ¶ 85.
 See Villani, supra note 15.
 See Telford, supra note 1.
 Indictment, ¶ 92.
 See Telford, supra note 1.
 Indictment, ¶¶ 71-73, 155.
 Indictment, ¶ 97.
 Indictment, ¶ 98.
 Indictment, ¶ 105.
 Indictment, ¶ 102.
 Indictment, ¶ 105.
 Indictment, ¶ 92.
 See Insys executives used rap video to push sales of potentially lethal opioid, CBS News (Feb. 14, 2019), https://www.cbsnews.com/news/insys-executives-used-rap-video-to-push-sales-of-highly-addictive-opioid/.
 See Jake DuCharme, et al., Racketeer Influenced and Corrupt Organizations, 56 Am. Crim. L. Rev. 1323, 1326 (2019) (listing the crimes that qualify as a racketeering activity).
 Id. Although the RICO statute does not contain an explicit statute of limitations, the Supreme Court has ruled that there is a five-year limitations period for criminal RICO prosecutions “because Congress explicitly provided a five-year term as the default statute of limitations for criminal actions.” Id. (citing Agency Holding Corp. v. Malley-Duff & Assoc., Inc., 483 U.S. 143 (1987)). There is a four-year statute of limitations for civil RICO actions. Id.
 See Id.
 See 42 U.S.C.A § 1320(a)-7b(b)(2).
 Indictment, ¶ 97.
 See Peter Henning, RICO Offers a Powerful Tool to Punish Executives for the Opioid Crisis, New York Times (May 23, 2019), https://www.nytimes.com/2019/05/23/business/dealbook/rico-insys-opioid-executives.html.
 See 21 U.S.C. § 841.
 See 18 U.S.C. §§ 1341, 1343, 1346; Indictment ¶ 246.
 Indictment, ¶ 71-73.
 See Opioid Manufacturer Insys Therapeutics Agrees to Enter $225 Million Global Resolution of Criminal and Civil Investigations, supra note 5.
 Indeed, by mid-summer 2019, the DOJ had also charged executives with Rochester Drug Co-Operative (RDC) and Miami-Luken with illegal distribution of opioids. The RDC executives were potentially spared since the company paid a penalty and agreed to make changes to its operations. But Miami-Luken was no longer in business when the charges were filed against its ex-president, compliance officer and two pharmacists. https://www.fiercepharma.com/manufacturing/drug-distributor-and-two-its-executives-hammered-felony-criminal-charges-for-opioid; https://www.fiercepharma.com/pharma/doj-indicts-second-opioid-distributor-for-role-illegally-pushing-pills-despite-warning-signs.
 See Field & Buccola, supra note 7.
 Ryan Boysen, Insys Hit With Nationwide Opioid Class Claim In Ch. 11, Law360 (June 17, 2019, 6:01 PM EDT), https://www.law360.com/articles/1169821/insys-hit-with-nationwide-opioid-class-claim-in-ch-11.
 See Holder, supra note 10.
 Yet the general public nuisance theory has not borne fruit against gun manufacturers, who have aggressively and successfully defended similar lawsuits. Public nuisance claims against gun manufacturers have been dismissed based upon several theories, including the following: “(1) the lawful sale of guns did not meet the requirement of a nuisance that interfered with a right common to the general public, (2) the gun manufacturers did not have control over the use of guns once they had been shipped to licensed distributors and dealers and thus the manufacturers [could] not have caused the nuisance; and (3) proximate causation was missing between the criminal misuse of handguns and the mere manufacture of the guns themselves, which were a lawful and legitimate product when used appropriately.” See Holder, supra, note 10.
 See Ashley Cty. v. Pfizer, 552 F.3d 659 (8th Cir. 2009).
 Id. at 671.
 Sally Quillian Yates, Memorandum for the Assistant Attorney General: Individual Accountability for Corporate Wrongdoing, U.S. Dep’t of Justice (Sept. 9, 2015).