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Sunday, August 12, 2012 - Page updated at 07:30 p.m.
Fraud settlements rarely touch executives
By MICHAEL S. SCHMIDT and EDWARD WYATT
The New York Times
WASHINGTON — Pharmaceutical companies, military contractors, banks and other corporations are on track to pay as much as $8 billion this year to resolve charges of defrauding the government, analysts say — a record sum and more than twice the amount assessed last year by the Justice Department.
The surge in penalties is because of a number of factors, including the resolution of longstanding actions against drugmakers and military contractors, as well as lawsuits brought against mortgage lenders after the financial crisis.
But it also reflects a renewed emphasis on corporate fraud, as the Justice Department devotes more resources to the issue and demands higher penalties from companies.
"We are putting more resources into these cases and better using the resources we have," said Tony West, the acting associate attorney general.
The ballooning settlements are for civil charges of fraud against the government, criminal charges often related to the same conduct and, in the case of health-care companies, recovery of money for states for Medicare fraud.
But while the collections are a boon to the government and taxpayers, they are resurrecting questions about the relative lack of charges against executives at the companies that are getting the stiffest penalties.
"A lot of people on the street, they're wondering how a company can commit serious violations of securities laws and yet no individuals seem to be involved and no individual responsibility was assessed," Sen. Jack Reed, D-R.I. and chairman of a subcommittee that oversees securities regulation, said at a recent hearing.
President Obama, lawmakers and government watchdog groups have called for holding more individuals responsible.
The Justice Department has collected $8.6 billion over the last three years, more than in any similar period in history, but relatively few prosecutions of individuals have come from the biggest settlements.
The most recent cases involve wrongdoing at some of the largest and most prominent companies.
Last month, for example, GlaxoSmithKline said it would pay $3 billion to settle criminal and civil accusations of drug marketing and pricing fraud.
In April, the military contractor ATK Launch Systems agreed to a $37 million settlement for selling "dangerous and defective" flares to the military.
In November, Merck settled charges of drug marketing and safety fraud for $950 million.
A month earlier, Oracle agreed to pay $199.5 million after being accused of overbilling the government for software.
The difficulties of prosecuting executives were highlighted last week in New York, where a federal jury acquitted a Citigroup manager who had been involved in selling an exotic financial security involving residential mortgages.
The manager, Brian H. Stoker, was charged with falsely describing Citigroup's role in selecting the assets in the portfolio and failing to disclose that Citigroup was betting against the investment.
The jury cleared Stoker in part because the bank had given investors fine-print materials that apparently warned them of the investment's risks.
Lawyers say the government is more likely to go after companies because of their deep pockets.
Civil cases against businesses can often produce substantial financial awards without the risk inherent in a trial.
Civil charges also have a lower burden of proof than criminal charges.
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