Civil lawsuits are an unavoidable and expected consequence of operating in a heavily regulated industry. While CEOs and other pharmaceutical executives may lose sleep over the outcome of civil trials and the potential financial consequences, standing before a criminal jury has not been on their radar. Criminal prosecution has historically been reserved for those operating outside the industry. But recent enforcement developments regarding the Controlled Substances Act (CSA), the federal statutory framework governing the sale and distribution of narcotics and other controlled substances, by the Department of Justice (DOJ) may change what it means to be a drug dealer.
Federal prosecutors in the Southern District of New York indicted the CEO of a large pharmaceutical distribution company under the CSA for his leadership in an alleged conspiracy to traffic opioids and defraud the government. Although the CEO’s alleged conduct was arguably egregious, his prosecution represents a major departure by the DOJ from its historical position to leave adjudication of possible tortious conduct to attorneys general and the plaintiff’s bar.
This indictment raises a larger issue: will the DOJ continue to expand the scope of the CSA to criminally prosecute drug company executives, and thus, literally broaden the definition of “drug dealer”
II. Indictment of Laurence F. Doud under the Controlled Substances Act
On Tuesday, January 25, 2022, federal prosecutors in the Southern District of New York commenced the drug trafficking trial of Laurence F. Doud. When the empaneled jury arrived at the federal courthouse in Manhattan, the accused likely did not have the appearance of a typical drug trafficker – and that’s because he wasn’t. Doud was the CEO of Rochester Drug Co-Operative (RDC), a New York-based prescription pharmaceutical distribution company. Doud was accused of masterminding a conspiracy to supply a large amount of opioids to pharmacies that were suspected of being pill mills, in violation of the CSA.
This indictment is significant as the first instance of a federal prosecutor wielding the CSA against a company executive, as opposed to its more traditional purpose of bringing illegal, street-level drug dealers to justice. The implications are potentially far-reaching, as the indictment describes Doud as “responsible for, among other things, supervising the Company’s compliance with federal narcotics laws” as the CEO.
Specifically, the indictment levied the following accusations against Doud:
Count One: Narcotics Conspiracy of the following provisions of the Controlled Substances Act
- 21 U.S.C. § 841(a)(1): Conspiracy to “distribute and possess with intent to distribute controlled substances, outside the scope of professional practice and not for legitimate purpose. . .”
- 21 U.S.C. § 841(b)(1)(c): Conspiracy to “distribute and possess with intent to distribute . . . a quantity of mixtures and substances containing detectable amounts of oxycodone . . .”
- 21 U.S.C. § 841(b)(1)(A): Conspiracy to distribute “400 grams and more of mixtures and substances containing a detectable amount of fentanyl . . .”
Count Two: Conspiracy to Defraud the United States under 21 U.S.C. § 371, et seq.
- Defendant, and others, “willfully and knowingly combined, conspired, confederated, and agreed together and with each other to defraud the United States and an agency thereof, to wit, the DEA, in violation of 21 U.S.C. § 371.”
Doud is alleged to have defrauded the DEA by preventing its enforcement of narcotics laws by failing to report suspicious orders of controlled substances and their known diversion. The DOJ also included a forfeiture count for all property and money derived from and traceable to Doud’s conspired offenses or, if that property could not be located or identified, that the defendant be required to forfeit some property of equal value.
In support of these charges, the DOJ alleged that RDC, under Doud’s direction, “supplied tens of millions of oxycodone, fentanyl, and other dangerous opioids to pharmacy customers that [RDC’s] compliance personnel determined, and reported to Doud, were dispensing those drugs to individuals who had no legitimate need for them.” The indictment alleged that Doud directed this conduct to “maximize [RDC’s] revenues and Doud’s compensation.” The indictment alleges that Doud ignored “red flag” warnings triggered by RDC’s own DEA-compliance policies and directed RDC to continue selling highly addictive controlled substances to pharmacies whose purchase and distribution of large quantities of opioids to out-of-state patients paying in cash was inconsistent with recognized medical standards. When RDC’s chief operating officer questioned the company’s relationship with one of their largest pharmacy customers, Doud allegedly told him to “kill it and die!” The DOJ also cited numerous emails where Doud instructed his employees to ignore DEA compliance protocols so that new accounts could be opened faster. In fact, out of the 8,700 “orders of interest, including 412 flagged orders for fentanyl and 2,530 flagged orders for oxycodone, RDC only reported four suspicious orders to the DEA” according to the indictment. The DOJ sought to hold Doud accountable for this entire scheme.
III. Criminal Liability under the CSA
Historically, prosecution under the CSA has been reserved for illegal drug dealers, such as the infamous “El Chapo” and “those outside the legitimate distribution chain.” In the past, if a pharmaceutical executive were to be prosecuted by the DOJ, it would have likely been under the more benign Food, Drug and Cosmetic Act (FDCA) for selling drugs for an unauthorized purpose. While a conviction under the FDCA could carry stiff financial penalties, only 1% of FDA inspections result in criminal prosecution, and technical infractions of the FDCA are not likely to draw criminal interest from the DOJ. This has been the case even though violations of the FDCA are a strict-liability crime, meaning the government would not need to prove that the accused intended to violate the relevant provision of the FDCA to get a conviction. With this history in mind, Doud argued that the CSA should not be used as a vehicle to prosecute a pharmaceutical executive and asked for dismissal, which was denied.
Under the CSA, a criminal jury must be satisfied beyond a reasonable doubt that the accused knowingly and intentionally violated the law. In the context of a typical criminal drug-dealing case, intent can be proven through circumstantial evidence – think guns, speedboats, stacks of cash and illegal narcotics. But in a corporate setting, the government must prove intentional criminal conduct with evidence not traditionally associated with illegal drug dealers. Indeed, the indictment against Doud references numerous corporate emails supporting the alleged conspiracy and corroborates his alleged conduct with testimony from other company employees and executives who witnessed his purported misconduct. The government also used data to demonstrate the exponential growth of opioid sales by RDC during this same time period.
Of course, this is not the first time the CSA has been used to prosecute individuals other than illegal drug dealers. Since its passage, the CSA has been used to prosecute physicians and pharmacists whose conduct deviated from the bounds of professional practice such that their conduct aligned more closely to that of a street-level drug dealer. But these physicians and pharmacists were more closely connected with the direct distribution of regulated narcotics to the end-user.
Recent amendments to the CSA may have foreshadowed the DOJ’s latest efforts to cast a broader net of criminal liability. In 2018, just prior to the indictment of Doud, President Donald Trump signed into law the Substance Use-Disorder Prevention That Promotes Opioid Recovery and Treatment for Patients and Communities Act (the SUPPORT Act), a legislative package that was written specifically to address the rapidly-expanding opioid crisis. Under the SUPPORT Act, reports and consolidated data are provided to drug manufacturers and distributors to help them identify illegal drug diversion and the operation of so-called pill mills. More importantly, the SUPPORT Act mandates that drug manufacturers and distributors implement and maintain rigorous internal compliance protocols to flag suspicious orders and report them to the DEA. The SUPPORT Act includes a maximum fine of $500,000 for failure to comply with these new requirements.
IV. Evidence of Intentional Conduct
Although the Doud indictment and the government’s zealous prosecution of a drug company executive may cast an ominous shadow over the future of DEA-regulated drug distribution, executives need not panic. Doud’s alleged conduct, which the jury found compelling, was egregious by any standard: he ignored self-imposed regulations designed to protect the company and the public from illegal drug diversion schemes. His indictment is riddled with damning emails showing his clear intent to put profits over safety and his conduct was confirmed by the testimony of other executives at RDC.
V. Lessons from Doud
While Doud’s indictment and trial serve as a warning, the situation should also be seen as an inverse blueprint to instruct pharmaceutical executives on best practices to comply with the statute and avoid criminal prosecution under the broadening scope of the CSA.
First and foremost, prudent pharmaceutical executives should embrace the new requirements of the CSA and the SUPPORT Act:
- Implement CSA-compliant internal regulations that flag drug diversion patterns and heed those regulations religiously.
- Report suspicious orders to the DEA and other appropriate authorities.
- Document efforts to comply with existing and new regulations.
Second, remember that prosecution under the CSA requires proof of intent. In Doud’s indictment, the prosecution relied on his emails and testimony from other RDC employees to demonstrate his willful violation of the law. But intent may also be inferred from other conduct, including conduct traditionally associated with obstruction of justice (which carries its own criminal penalties). For example, the following actions may be considered obstruction of justice and evidence of intentional criminal conduct in the context of a CSA-related investigation:
- Knowingly and intentionally lying to federal prosecutors and DEA investigators when being questioned;
- Intentionally falsifying or destroying any potentially incriminating documents that are being sought by the DEA;
- Attempting to influence other company employees not to speak with or assist DEA investigators, or otherwise instruct them not to testify before a grand jury or at trial;
- Knowingly and intentionally tampering with any evidence;
- Retaliating against a party involved in the alleged criminal conduct; and
- Resisting lawful arrest.
VI. Future of the CSA
Prosecution of corporate executives is not a fading trend and there are no indications that the current administration intends to back off DOJ’s current position to hold company leaders responsible for corporate misconduct. In 2015, then-Deputy Attorney General Sally Q. Yates issued the infamous “Yates Memo,” which stated:
One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing. Such accountability is important for several reasons: it deters future illegal activity, it incentivizes changes in corporate behavior, it ensures that the proper parties are held responsible for their actions, and it promotes the public’s confidence in our justice system.
Indeed, this directive is codified in Section 9-28.210 of the DOJ’s Justice Manual – Principles of Federal Prosecution of Business Organizations: Focus on Individual Wrongdoers:
Prosecution of a corporation is not a substitute for the prosecution of criminally culpable individuals within or without the corporation. Because a corporation can act only through individuals, imposition of individual criminal liability may provide the strongest deterrent against future corporate wrongdoing. Provable individual criminal culpability should be pursued, particularly if it relates to high-level corporate officers, even in the face of an offer of a corporate guilty plea or some other disposition of the charges against the corporation, including a deferred prosecution or non-prosecution agreement, or a civil resolution. In other words, regardless of the ultimate corporate disposition, a separate evaluation must be made with respect to potentially liable individuals.
As recently as March 2, 2022, Attorney General Merrick Garland reaffirmed the DOJ’s commitment to prosecuting individuals for corporate crimes, stating in a presentation to the ABA Institute on White Collar Crime, “I have made it clear that the Department’s first priority in corporate criminal cases is to prosecute the individuals who commit and profit from corporate malfeasance.” The Attorney General specifically stated that “[i]t is our first priority because penalties imposed on individual wrongdoers are felt by those wrongdoers, rather than by shareholders or inanimate organizations.”
These directives should not be taken lightly by executives in any DEA-regulated industry, particularly while the future parameters of executive prosecution under the CSA are still being defined. In fact, currently pending before the U.S. Supreme Court is the appeal of two physicians convicted of illegally prescribing opioids under the CSA. Oral argument was heard on March 1, 2022. The physicians, now serving significant jail time, argued that criminal intent cannot be established by objective medical standards, but rather through their subjective professional medical opinions. The government countered that their convictions were proper because the physicians prescribed the controlled medications outside any reasonable medical standard. A ruling in favor of the physicians would raise the burden of proof needed to establish criminal intent under the CSA, at least with respect to the prosecution of physicians, while a ruling upholding their convictions may encourage the DOJ to ramp up prosecutions under the CSA across the board.
A decision from the High Court is expected this summer. We look forward to reviewing the ruling when it comes and providing an updating our readers.
 United States v. Laurence F. Doud, III, No. 1:19-cr-00285-GBD (S.D.N.Y.).
 Id. at Dkt. No. 1, Indictment (April 22, 2019) at ¶ 1.
 Id. at ¶¶ 20-22; 37-38.
 Id. at ¶ 1.
 Id. at ¶ 21.
 Id. at ¶ 22.
 Id. at ¶ 37.
 Id. at ¶¶ 24, 38.
 Id. at ¶¶ 40-41.
 Id. at ¶ 3.
 Id. at ¶ 14. Interestingly, the indictment also alleges that Doud ignored outside legal counsel’s advice. Id. at ¶ 10.
 Id. at ¶ 16(b).
 Id. at ¶¶ 28-29.
 Id. at ¶ 39(a).
 United States v. Moore, 423 U.S. 122, 130 (1975).
 James T. O’Reilly, Food and Drug Administration § 8.1, 8.2 (2d ed. 2005).
 See United States v. Park, 421 U.S. 658, 672-73 (1975) (criminal liability under the FDCA does not require “awareness of some wrongdoing” or “conscious fraud”).
 United States v. Doud, No. 1:19-cr-00285-GBD (S.D. N.Y.), Dkt. No. 14, Memorandum of Law In Support of Defendant Laurence F. Doud’s Motion to Dismiss Count One of the Indictment (Oct. 1, 2019); Id. at Dkt. No. 119, Memorandum Decision and Order (Jan. 5, 2022).
 Id. at Dkt. No. 1, Indictment at ¶16(b).
 See Gonzalez v. Oregon, 546 U.S. 243, 269-70 (2006) (noting that the CSA “prohibit[s] a doctor from acting as a drug ‘pusher’ instead of a physician.”)
 Pub. L. No. 115-271, § 3201-04; see also, Congressional Research Service, R45948, Feb. 5, 2021, https://sgp.fas.org/crs/misc/R45948.pdf.
 Pub. L. No. 115-271, § 3282.
 Id. at §§ 3291-92.
 Id. at § 3273.
 Memorandum from Sally Quillian Yates, Deputy Att’y Gen., U.S. Dep’t of Justice to All U.S. Att’ys et al., Individual Accountability for Corporate Wrongdoing (Sept. 9, 2015), at 1. https://www.justice.gov/archives/dag/file/769036/download.
 Dep’t of Justice Manual, Title 9 Section 28-28.210, Principles of Federal Prosecution of Business Organization, https://www.justice.gov/jm/jm-9-28000-principles-federal-prosecution-business-organizations.
 “Attorney General Merrick B. Garland Delivers Remarks to the ABA Institute on White Collar Crime,” Press Release from the Department of Justice dated March 3, 2022, https://www.justice.gov/opa/speech/attorney-general-merrick-b-garland-delivers-remarks-aba-institute-white-collar-crime.
 See Ruan v. United States, Case No. 20-1410 (U.S.), and Kahn v. United States, Case No. 21-5261 (U.S.).
 Ruan, Case No. 20-1410, Petition for Writ of Certiorari, at p. i (“The question presented, on which the circuits are deeply divided, is whether a physician alleged to have prescribed controlled substances outside the usual course of professional practice may be convicted under Section 841(a)(1) without regard to whether, in good faith, he ‘reasonably believed’ or ‘subjectively intended’ that his prescriptions fall within that course of professional practice.”; Kahn, Case No. 21-5261, Petition for Writ of Certiorari, at p. 1 (“Where the government prosecutes a medical practitioner under the Controlled Substances Act for issuing a prescription outside ‘the usual course of professional practice,’ is the government required to prove that the doctor knew or intended that the prescription be outside the scope of professional practice?”).
See Ruan, Case No. 20-1410, Brief of Respondent, at 15, 16 (“The court of appeals’ rejection of petitioners’ proposed jury instruction here is inconsistent with the uniform view of other courts appeals, which have recognized that ‘allowing criminal liability to turn on whether the defendant-doctor complied with his own idiosyncratic view of proper medical practices is inconsistent with [this] Court’s decision in Moore.’”) (citing United States v. Hurwitz, 459 F.3d 463, 478 (4th Cir. 2006); Kahn, Case No. 21-5261, Brief of Respondent, at 11-12 (arguing that the petitioner’s subjective intent when prescribing opioids was not a defense when his practice “departed from the usual course of medical practice.”) (citing United States v. Moore, 423 U.S. 122, 139-140 (1975)).