The Limits of Leniency

The mission of the U.S. Justice Department is to enforce federal law, but when it comes to corporate offenders the DOJ often exhibits a puzzling reluctance to carry out that function.

A current example of this hesitancy involves Boeing. In 2021, in the wake of two crashes linked to defects in the company’s 737 MAX airliner, DOJ initiated a criminal investigation into whether Boeing conspired to mislead the Federal Aviation Administration about the safety of the plane.

Yet instead of filing charges, DOJ offered Boeing a deferred prosecution agreement (DPA) under which it would pay about $2.5 billion in penalties while not having to plead guilty. DOJ declined to require the appointment of an independent monitor, but it required the company to strengthen its compliance and ethics procedures.

More than three years have passed, and the DOJ has concluded that Boeing has not lived up to its obligations. Rather than announcing it will now bring actual criminal charges, Boeing sent a letter to the federal judge overseeing the case saying it is “is determining how it will proceed in this matter.”

This sounds like a prelude to some other kind of leniency deal with the company. That might mean a modification of the current DPA or a new one.

Boeing’s failure to comply with the DPA is hardly unprecedented, and there have been plenty of examples of corporations that have been offered more than one leniency arrangement. Among the more than 500 deferred prosecution and non-prosecution agreements documented in Violation Tracker, there are about three dozen parent companies that have received more than one. Among those is Boeing, which in 2006 was allowed to enter into a non-prosecution agreement to resolve a case involving federal contracting violations.

Amazingly, there are ten parents that have been given more than two leniency agreements. These are mostly banks, both domestic (such as JPMorgan Chase and Wells Fargo) and foreign-based (such as Deutsche Bank and HSBC). The DOJ is willing to go to great lengths to help rogue banks avoid a guilty plea.

The rationale for leniency agreements is that they will prompt companies to clean up their practices. In all too many cases, that is not what happens. After getting its deal, the corporation ends up violating the same or other laws. At that point, DOJ should throw the book at the offender. When DOJ instead offers up more leniency, that makes a mockery of the process.

In the case of Boeing, more leniency would be especially ridiculous, given that the company is already the subject of a new criminal investigation stemming from an incident earlier this year in which a fuselage panel blew off an Alaska Airlines 737 MAX mid-flight.

At the very least, DOJ should file real criminal charges against Boeing for violating the DPA. The Department should also use this as an opportunity to rethink its entire approach to corporate criminality. The reliance on leniency is not working.

It is time to explore new forms of punishment that will compel large companies to take their legal obligations more serious—and thereby protect the public from the consequences of their misconduct.

Private Equity is Bad Medicine for Hospitals

One day after 60 Minutes aired a laudatory story about the efforts of an executive at KKR to promote partial employee ownership at firms he takes over, the more common consequences of private equity were on display in the announcement that Steward Health Care was filing for Chapter 11. The company then put its 31 U.S. hospitals up for sale.

Bankruptcy was the unsurprising destination for a company that has been on a downward trajectory since 2010, when Cerberus Capital Management took over what had been a Catholic non-profit hospital chain known as Caritas Christi Health Care and turned it into a for-profit operation. As is common in private equity deals, the new business assumed the cost of the acquisition.

It appeared that Cerberus was less interested in turning a profit and more focused on looting the company. It accomplished this by selling the firm’s facilities for over $1 billion to a real estate investment trust, which then started collecting hefty rents from Steward while Cerberus and its investors reaped hundreds of millions of dollars in gains. While Steward went deeper into debt and struggled to pay its bills, Cerberus exited the company in 2020.

While Steward’s financial woes have received a fair amount of coverage, it is also worth pointing out how the company’s ordeal with private equity ownership and its aftermath is also reflected in its dismal compliance record.

As shown in Violation Tracker, Steward has racked up millions in regulatory penalties since Cerberus converted Caritas Christi. In 2020, for example, Steward Holy Family Hospital in Massachusetts paid a penalty of more than $6 million to the U.S. Department of Health and Human Services for failing to maintain physician certifications, recertifications, and treatment plans for inpatient psychiatry services in violation of Medicare billing requirements.

In 2022 Steward paid over $4 million to settle a case brought by the Justice Department alleging that the Steward Good Samaritan Medical Center in Brockton, Massachusetts made improper payments to a local urology practice for referring patients. The payments were supposed to compensate the  practice to operate a Prostate Cancer Center of Excellence at the hospital that did not actually exist.

In 2016 the Steward Carney Hospital in Dorchester, Massachusetts was fined by OSHA for failing to provide puncture-resistant gloves to staff members in the psychiatric unit who were required go through patient belongings where sharp objects such as knives and needles had been found.

In 2017 Steward acquired IASIS Healthcare, which had its own tainted record, which included a penalty of $1.5 million for implanting cardiac devices in Medicare patients who were not eligible for the procedure.

For-profit hospitals were not a good idea to begin with, but adding private equity to the mix only makes things worse. Steward is a glaring example of how PE deteriorates both working conditions for hospital staff and the quality of care for patients. If its hospitals fall to find responsible buyers, entire communities may suffer adverse consequences as well.

What Does a Billion-Dollar Settlement Accomplish?

The news that the Dutch company Royal Philips has just agreed to pay $1.1 billion to settle U.S. litigation concerning defective breathing machines was reported on page B3 of the print edition of the Wall Street Journal and page B5 of the New York Times. In other words, it was not considered a major story of the day.

There was a time when a billion-dollar class action settlement would be front-page news and might have an impact on a company’s stock price and its reputation. That was especially true with regard to the $368 billion settlement the tobacco industry reached with state governments. That deal merited a banner headline stretching across the entire front page of the Times in 1997.

A great deal of attention was also paid to the multi-billion settlements reached in 2012 with BP with regard to the Deepwater Horizon disaster and in 2016 with Volkswagen in connection with its emissions cheating scandal.

These days, major settlements receive less notice despite a spate of what might be called mega-settlements—those with a price tag of $5 billion or more. Last year, Johnson & Johnson agreed to pay around $9 billion to settle lawsuits alleging that its talcum powder causes ovarian cancer. 3M agreed to pay $6 billion to settle litigation over hearing loss said to be caused by defective combat earplugs supplied to members of the military.

This year 3M agreed to pay $12.5 billion to settle litigation alleging it was responsible for contaminating thousands of public water systems with dangerous PFAS chemicals. Visa and Mastercard agreed to a $30 billion settlement of antitrust litigation concerning the fees they charge to merchants.

A mega-settlement has also appeared in Brazil, where joint venture partners Vale and BHP have agreed to provide an estimated $25 billion to communities ravaged by the 2015 collapse of a tailings dam.

These examples are limited to private litigation. Companies are also paying billions in cases brought by government agencies, especially with regard to the opioid crisis.

There are positive and negative aspects to these settlements. On the plus side, it is good that giant corporations are being compelled to pay sizeable compensation packages to groups of people harmed by their misconduct. It is true that a big chunk of these payouts goes to plaintiffs’ lawyers, though the hope it that they will use the proceeds at least in part to fund future class actions.

The problematic part is that corporations can view the settlements—whose size often falls short of the estimated harm caused by the company—as a tolerable cost of doing business. They may then feel little pressure to change their practices in a fundamental way.

Major litigation is not just a way to punish corporations financially for wrongdoing. It is supposed to serve as a deterrent against future bad acts. That fact seems to be getting forgotten as companies regard settlements as mere transactions, and the public pays less attention. Normalization of corporate misconduct will result in more of it.

Antitrust in the Workplace

Seeking to end one of the last remaining forms of indentured servitude in the United States, the Federal Trade Commission has issued a final rule that would largely ban the ability of companies to prevent employees from taking a job with a competing firm. The change would remove shackles from an estimated 30 million workers.

This is a bold move by the FTC, which normally handles cases involving anti-competitive practices by individual companies and which has traditionally focused on consumer protection rather than worker rights. The agency argues that eliminating non-competition clauses will not only help workers but will indirectly benefit consumers by stimulating business formation and reducing market concentration.

There appears to be broad support for the FTC action. The agency said that, of the 26,000 comments it received on the proposed rule on non-competes issued last year, over 25,000 endorsed the change. Corporations, on the other hand, are outraged at the rule. The U.S. Chamber of Commerce issued a statement calling it “another attempt at aggressive regulatory proliferation.” The Chamber, which vowed to bring a legal challenge, also argued that the issue should be left up to the states, most of which currently allow non-competes.

Non-competition restrictions are fundamentally a form of wage suppression. Workers barred from taking a job with a rival company are in a weaker bargaining position when it comes to pay. As such, non-competes serve the same function for employers as two other anti-competitive practices: non-poaching agreements and wage-fixing arrangements.

The first of those are agreements among companies not to hire people from one another. Workers, whether or not they are subject to a non-competition agreement, are thus in effect blacklisted if they apply for a position at another firm. The Justice Department has brought several cases as criminal matters and has faced a series of setbacks in court.

Private plaintiffs’ lawyers, on the other hand, have won a few dozen settlements in civil class actions. The largest no-poach settlement occurred in 2015, when Apple, Google, Intel and Adobe Systems agreed to pay a total of $415 million to class action plaintiffs. Cases have also involved blue-collar occupations such as truck drivers and railcar assembly workers.

Wage-fixing, analogous to price-fixing, occurs when employers in a specific labor market agree not to pay wages above a certain level. DOJ has had limited success in its prosecutions in this area as well, but here too there have been some substantial civil settlements. The most significant of these have occurred in the poultry processing industry, where companies including Pilgrim’s Pride have paid over $40 million in settlements. Several other settlements, including a $60 million agreement with Perdue Farms, are awaiting final court approval. Groups of hospitals in Michigan and upstate New York have paid over $70 million to resolve allegations they conspired to depress the wages of nurses.

The FTC’s regulatory initiatives, along with these court cases, constitute an aggressive use of antitrust law to address employer abuses. They offer significant hope for reducing the severe imbalance of power between employers and workers in U.S. labor markets.

Declining Prosecution

Three attorneys at Covington & Burling recently received a letter that could be seen as the ultimate achievement of a corporate lawyer. The U.S. Justice Department wrote to inform them that, although fraud was committed by employees of their client, Proterial Cable America, no charges would be filed against the firm.

Proterial, formerly known as Hitachi Cable America, is the latest recipient of a DOJ leniency practice known as declination. The Department has frequently been criticized for its extensive use of deferred prosecution and non-prosecution agreements. These arrangements allow companies involved in criminal misconduct to avoid having to enter a plea, though they must pay a penalty. DOJ holds open the possibility of an actual prosecution at a later date if the company does not change its behavior.

In a declination, prosecution is in effect taken off the table entirely. The only real consequence for the company is having to disgorge the profits it earned as a result of the fraudulent behavior. In the case of Proterial, that amount is about $15 million. This is a far cry from the amounts companies pay in deferred and non-prosecution agreements, which for firms such as Wells Fargo and Boeing have been several billion dollars.

Proterial’s fraud consisted of misrepresenting to customers that the motorcycle brake hose assemblies it sold met federal safety performance standards. The problem was not that the company failed to test the assemblies. It did the tests but lied to customers about the results, claiming that the assemblies had passed when in fact they had failed.

The Justice Department justified its declination in various ways. It said Proterial self-reported the misconduct; it cooperated with the investigation; it terminated the employees; and it agreed to the disgorgement. DOJ’s declination letter does not, however, explain how the misconduct came about—specifically, the issue of whether the employees who lied about the test results were acting at the direction of supervisors or managers.

It is difficult to believe that low-level employees would decide on their own to engage in the deception. It may very well be that they were pressured, whether explicitly or implicitly, by their bosses to do so. This is what happened, for example, at Wells Fargo, where employees facing impossible demands from managers to increase revenue resorted to the creation of bogus accounts, unbeknownst to customers.

Proterial’s parent, Hitachi Metals Ltd., does not have a spotless record. In 2014 it pled guilty and paid a $1.25 million criminal fine to the DOJ for its role in a conspiracy to fix prices and rig bids for automotive brake hoses installed in cars sold in the United States and elsewhere. This prior offense should have made the company ineligible for the declination.

Since the Biden Administration took office, the DOJ has carried out half a dozen declinations, according to a list published on the Department’s website. It is unclear how many other leniency agreements contain the additional benefit of remaining anonymous.

The DOJ seems wedded to the idea that leniency provides an effective incentive for companies to self-report misconduct, but it may also be a way for rogue companies to take themselves off the hook.

The $1 Trillion Cost of Corporate Misconduct

When you hear a reference to $1 trillion, it usually is in connection to the stock market capitalization of a handful of the largest tech companies. Yet that ten-figure number can now also be applied to what those companies and others have together paid in fines and settlements to resolve allegations of misconduct.

The total penalties documented in the Violation Tracker database for the period from 2000 through the present now surpass $1 trillion. To mark this milestone, my colleagues and I have just issued a report called The High Cost of Misconduct, which looks back at the last quarter-century of corporate crime and regulatory non-compliance.

Total payouts grew from around $7 billion per year in the early 2000s to more than $50 billion annually in recent years. This amounts to a seven-fold increase in current dollars, or a 300 percent increase in constant dollars.

The $1 trillion total could not have been reached without the massive penalties paid by companies such as Bank of America ($87 billion, mainly in connection with the toxic securities and mortgage abuses scandals of the late 2000s), BP ($36 billion, mainly from the Deepwater Horizon disaster), Wells Fargo ($27 billion, largely from the bogus accounts scandal), and Volkswagen ($26 billion, primarily from the emissions cheating scandal). There are 127 companies with penalty totals of $1 billion or more.

With these companies and many others, their totals reflect flagrant recidivism. Looking only at the more serious cases, two dozen parents have been involved in 50 or more cases in which they paid fines or settlements of $1 million or more. Bank of America has the most, with an astounding 225 such cases.

While the vast majority of the 600,000 cases in Violation Tracker are civil actions, the database contains more than 2,000 entries involving criminal charges. These account for more than 13 percent of the $1 trillion penalty total. Twenty-six parent companies have paid $1 billion or more in criminal cases, with the largest totals coming from the French bank BNP Paribas in connection with economic sanctions violations and from Purdue Pharma for its role in causing the opioid epidemic.

In many of these criminal cases, the companies were able to resolve the matter without having to plead guilty. That is because the Justice Department makes extensive use of arrangements known as deferred prosecution agreements and non-prosecution agreements. These are leniency deals by which companies pay substantial penalties but avoid a criminal conviction. Violation Tracker documents more than 500 cases involving a DPA or an NPA, with total penalties of more than $50 billion.

The theory behind these leniency agreements is that companies will learn from their mistakes and clean up their conduct. Yet there have been numerous instances of companies that signed a DPA or NPA ending up embroiled in another scandal. Amazingly, some of these companies were offered another leniency agreement, thus making a mockery of the deterrence concept. Among the double-dippers are American International Group, Barclays, Boeing, Deutsche Bank, HSBC, and Teva Pharmaceuticals.

The fact that penalties have reached the 10-figure level suggests that during the past quarter century we have been living through a continuous corporate crime wave. Every year, companies pay out billions of dollars for a wide range of offenses. Many large corporations are fined or enter into settlements over and over again, often for the same or similar misconduct.

Monetary penalties are meant in part to deter future transgressions, but there is no indication that is happening. Instead, the fines and settlements seem to be regarded as little more than a cost of doing business. Presumably, the profits from wrongdoing outweigh the penalties.

It is odd that amid a move to return to tougher policies to combat street crime, there is not an analogous effort to crack down on corporate crime. Instead, the Justice Department continues to employ leniency agreements that have frequently been ineffective in getting rogue companies to change their ways. The DOJ also remains reluctant to bring criminal charges against corporate executives, except in the most flagrant circumstances.

In a few cases, DOJ has experimented with different approaches, including forcing companies to exit lines of business in which they behaved illegally. Last year, for example, Teva Pharmaceuticals and Glenmark Pharmaceuticals were not only fined for scheming to fix prices of several generic drugs—they had to divest their operations relating to one of the drugs. That kind of penalty should shake up companies more than fines alone and thus should be used more frequently.

The Second Trump Administration is Open for Business

Much of the concern about a possible second Trump term has focused on what seem to be his increasingly authoritarian impulses. Yet we should also worry about old-fashioned corruption.

A glaring sign of what may coming has just appeared in the revelation that a businessman with a shady record put up the $175 million bond Trump had to pay while he appeals a civil fraud judgement in New York State. This was after Trump claimed he could not find any company willing to provide the original bond amount of $454 million and successfully begged a state appeals court to reduce the amount.

That businessman is Don Hankey, whose holdings include Knight Specialty Insurance, which provided the bond for what Hankey told the Washington Post was a “modest fee.” He claimed that the bond deal was not meant as a political statement, yet Hankey supported Trump’s claim that the case brought against him by New York Attorney General Letitia James was unwarranted.

Hankey has accumulated most of his fortune, which Forbes estimates at over $7 billion, from making subprime automobile loans via companies such as Westlake Financial, Westlake Services and Wilshire Consumer Credit. These businesses have run afoul of regulators.

In  2015 the Consumer Financial Protection Bureau hit Westlake Services and Wilshire Consumer Credit with a $48 million penalty, including a fine of $4.25 million and $44.1 million in cash relief and balance reductions for customers the agency said had been subjected to illegal debt collection practices. According to the CFPB, the companies:

  • Pretended to call from repo companies by altering caller ID information. The companies’ debt collectors would then make explicit or implicit threats that the borrowers’ vehicles were in imminent danger of being repossessed.
  • Altered caller ID information so that it looked like they were calling from unrelated businesses or family members.
  • Explicitly and implicitly threatened to file criminal charges against consumers even when they had not decided to refer the borrowers to criminal authorities. These tactics likely misled consumers into believing they needed to make a payment urgently to avoid an investigation.
  • Tricked borrowers whose vehicles had been repossessed by making it appear their calls were coming from a party associated with the word Storage. During some of these calls, the companies’ debt collectors implied that the vehicles would be released if the borrowers made a partial payment on the account; however, the companies would actually only release a repossessed vehicle after a borrower paid the full amount due.
  • Called consumers’ employers, friends, and family members without permission and told them that consumers were delinquent on loans or facing repossession, investigation, or criminal charges.
  • Paid a repo company to make collections calls to consumers, even when the companies had not decided to repossess the consumers’ vehicles or the companies had no reason to believe repossession was imminent. This tactic likely misled consumers into believing that they needed to make a payment urgently to avoid repossession.

The CFPB also accused Westlake and Wilshire of violating federal consumer financial laws in their advertising, customer relations, and account servicing practices. These were said to include changing the due dates on accounts or extended loan terms without consulting consumers and giving consumers incomplete information about the true cost of their loans.

In 2016 the Massachusetts Attorney General’s Office announced that Westlake Services would provide $5.7 million in relief to consumers to resolve allegations that the company charged excessive interest rates on subprime auto loans.

In 2017 Westlake Services and Wilshire Consumer Credit had to pay $760,000 to resolve a case brought by the U.S. Justice Department alleging they violated the Servicemembers Civil Relief Act by repossessing vehicles from members of the military without the required court orders.

Are we expected to believe that the owner of a business such as this is helping Trump solely out of the goodness of his heart? It seems a lot more likely that Hankey is currying favor with Trump in the hope of receiving future assistance from the White House in dealing with pesky regulators.

It is not difficult to imagine that Trump would use a new stint in the Oval Office for such purposes. After all, this kind of corruption was a constant theme during his first term, when special interest groups seeking presidential help could simply book an event or a block of rooms at Trump’s hotel on Pennsylvania Avenue.

What is amazing is that this kind of mischief seems to be happening again even before Trump has won the election or taken office.

Swiping Fees

For the past two decades, groups of merchants have been suing Mastercard and Visa for charging excessive credit card processing fees, also known as swipe fees. That effort has now paid off with a tentative class action settlement that will reduce the fees by an estimated $30 billion over the next five years.

This deal is on top of about $6 billion the companies previously agreed to pay in damages. Together, the cases represent one of the biggest business litigation settlements ever.

As large as the amounts are, they are not putting too much of a dent in the profitability of Mastercard and Visa, which together rake in about $100 billion a year from merchants and together enjoy about $30 billion in annual profits.

The issue of swipe fees has come up in connection with the proposed acquisition of Discover, the perennial also-ran of the credit card world, by Capital One. In its announcement of the deal, Capital One claimed it would enable Discover “to be more competitive with the largest payments networks and payments companies.” It is making similar arguments in its filings with regulators to gain approval for the purchase.

While Capital One may not have caused as much grief as Visa and Mastercard, its track record shows it cannot claim to be the savior of consumers and small businesses. In 2012, for example, the Consumer Financial Protection Bureau fined the company $25 million and ordered it to refund $140 million to customers following an investigation of deceptive tactics used in marketing credit card add-on products.

Capital One has also paid out tens of millions of dollars in settlements in class action lawsuits alleging abuses such improperly raising credit card interest rates after promoting low rates and charging unfair overdraft and balance inquiry fees.

The largest penalties paid by Capital One have been in cases involving deficiencies in its anti-money-laundering practices. In 2018 it was fined $100 million by the Office of the Comptroller of the Currency for failing to file required suspicious activity reports.

In 2021 the bank was fined $290 million by the Treasury Department’s Financial Crimes Enforcement Network for doing business with check-cashing services known to be linked to organized crime in New York and New Jersey.

Capital One may not have accumulated penalties to the same extent as larger banks such as Bank of America, JPMorgan Chase, Wells Fargo and Citigroup, but its total payouts have reached nearly $1 billion.

If it succeeds in buying Discover, it will acquire a company with $275 million in penalties of its own. Most of that comes from a 2012 case in which the CFPB fined Discover $14 million and ordered it to refund $200 million to customers said to have been subjected to deceptive marketing tactics regarding credit card add-on products. In other words, practices similar to those for which Capital One was penalized that year.

The solution to excessive swipe fees will come not from allowing another player with a questionable record to join Visa and Mastercard in dominating the payments market, but rather through antitrust and other regulatory action restricting the predatory practices of that market.

Mega-Scandals

Over the past quarter century, large corporations have paid hundreds of billions of dollars in fines and settlements for a wide range of misconduct. In Violation Tracker we document many thousands of these cases and place them in various categories. We have just added a new way of looking at the most egregious kinds of wrongdoing.

On the website we now identify clusters of major cases in which companies paid substantial penalties—from $25 million up to the billions—for practices that harmed large numbers of consumers, workers, investors or community members. We call these Mega-Scandals.

Chronologically, the first mega-scandal was the series of accounting and corruption scandals of the early 2000s at companies such as Enron, the high-flying energy trading company that went out of business—taking its auditor Arthur Andersen with it—when it turned out to be engaged in brazen accounting fraud.

Similar misconduct came to light at companies such as WorldCom, a telecommunications provider found to have inflated its assets by billions of dollars; Tyco International, a security systems firm whose CEO was convicted of misusing corporate funds to support a lavish personal lifestyle; and Adelphia Communications, whose principals were found guilty of looting the firm. One of the new mega-deal summary pages in Violation Tracker documents over $6 billion in penalties resulting from these cases.

The magnitude of the Enron era cases would be dwarfed by another mega-scandal which erupted later in the 2000s. It was the outgrowth of a period of financial deregulation that allowed Wall Street to create a slew of complex investment products backed by shaky home mortgages. When the housing market softened and many of those mortgages became delinquent, the value of residential mortgage-backed securities plunged. They came to be known as toxic securities.

The country avoided a complete financial collapse, but those toxic securities brought about significant legal and monetary consequences for the financial institutions held responsible for devising and marketing them. They found themselves the target of major lawsuits brought by the federal government, state governments, institutional investors and others. We estimate that the banks ended up paying more than $148 billion in fines and settlements, making this the most expensive of the mega-scandals.

The legal fallout from the financial crisis was also felt by the financial institutions that originated those shaky home mortgage loans behind the toxic securities. In some cases, they were part of the same banks that marketed the securities. Banks were sued both for luring low-income consumers into unsustainable mortgages and for misleading investors about those practices.

Far and away, the biggest payout in this category came from Bank of America, whose $53 billion total resulted from giant settlements with the U.S. Justice Department, state attorneys general, the loan guarantee agency Fannie Mae and others. JPMorgan Chase and Wells Fargo each racked up close to $9 billion in payouts. Overall, the mortgage abuse cases resulted in fines and settlements of more than $80 billion.

It was not long after the financial crisis that the next corporate mega-scandal burst onto the scene. It began on April 20, 2010 when an explosion occurred at the Deepwater Horizon drilling rig operated by BP in the Gulf of Mexico (photo). The accident killed 11 crew members and released a vast amount of oil into the gulf. It turned out to be the largest oil spill in history.

BP—along with the owner of the rig, Transocean, and Halliburton, which helped construct it—faced a wave of litigation alleging deficiencies in their actions before, during and after the accident. They ended up paying about $36 billion in settlements, with most of that coming from BP.

The pharmaceutical industry is responsible for several mega-scandals, the worst of which is the role drugmakers played in bringing about the opioid epidemic. Much of the blame has fallen on Purdue Pharma, which was relentless in promoting pain killers such as oxycodone, downplaying the risks of addiction even as overdose deaths soared. Purdue finally consented to a settlement in which it agreed to pay $8 billion and effectively go out of business, though the deal has been caught up in controversy over the effort of the Sackler family, which controlled the company, to shield itself from liability.

Other companies such as drug wholesalers and pharmacy chains have also faced major litigation over their alleged failure to question the enormous volume of prescriptions coming from dubious sources such as shady pain clinics known as pill mills. The Violation Tracker tally on the opioid mega-scandal estimates that total payouts have now surpassed $70 billion.

Among the other mega-scandals are:

  • The emissions cheating controversy centering on Volkswagen: $32 billion.
  • The wildfire liability controversy centering on PG&E: $18 billion.
  • The bogus bank account controversy centering on Wells Fargo: $8 billion.

More on these and other mega-scandals can be found on the Violation Tracker Summaries Page. Mega-scandals are also now included in the Offense Type dropdown on the Advanced Search page and thus can be combined with other variables.

Will Big Pharma Continue to Fleece Taxpayers?

Tensions are mounting between the Biden Administration, which wants to implement legislation passed in 2022 allowing Medicare to negotiate drug prices, and the pharmaceutical industry, which would like to nullify the law and maintain the highly profitable status quo.

Big Pharma has little support from the American public, which pays much more for its meds than residents of other countries. The industry is ultimately counting on being rescued by the business-friendly majority on the Supreme Court.

Being able to dictate prices to Medicare is not the only way drugmakers fleece government agencies and the public. In Violation Tracker we document more than 150 major cases of drug price cheating by large producers.

Some of these cases are old-fashioned price-fixing, in which supposedly competing producers conspire to set prices. Last year, for example, criminal charges were brought against Teva Pharmaceuticals and Glenmark Pharmaceuticals for scheming to fix prices of several generic drugs. Teva paid a $225 million criminal penalty and Glenmark paid $30 million. The companies were also ordered to divest their operations relating to the cholesterol drug pravastatin.

Generic producers are supposed to help reduce drug prices, but they often do the opposite. Along with price-fixing, they often engage in schemes called pay for delay. These are illegal deals in which they receive payments from producers of brand-name drugs whose patent protection is ending to look the other way as those producers use tricks to extend their exclusivity. Pay for delay arrangements are frequently challenged via class action lawsuits, and both brand-name and generic drugmakers have paid billions in settlements.

Earlier this year, for instance, Gilead Sciences agreed to pay over $246 million to settle litigation alleging it entered into an improper deal to delay the introduction of a generic version of its HIV medications. Pay for delay is apparently so profitable that nine-figure settlements have not put a dent in it.

Another form of cheating involves manipulation of the wholesale price levels drug companies are required to report to state Medicaid agencies and which are used in determining how much they receive for their products. This reporting is supposed to ensure that the prices being paid by Medicaid are not out of line with those charged to other parties.

Drugmakers have repeatedly been accused of reporting inflated prices to Medicaid, and have paid out large amounts in settlements. In 2016 Pfizer and its subsidiary Wyeth paid $784 million to resolve allegations that Wyeth knowingly reported to the government false and fraudulent prices on two of its proton pump inhibitor drugs.

Then there is the issue of rebates. Pharmaceutical companies often offer them to private-sector customers to promote their products, but they frequently fail to provide the same benefit to government health programs. Violation Tracker contains numerous cases in which drugmakers were accused shortchanging government agencies on rebates. In 2021 Bristol-Myers Squibb paid $75 million to settle one such case.

The Pharma giants have also driven up costs indirectly through practices such as paying kickbacks to healthcare providers to prescribe expensive medications and engaging in improper marketing to encourage off-label use of those over-priced meds.

There seems to be no end to the ways pharmaceutical companies pick the pockets of taxpayers and consumers. The Inflation Reduction Act could begin to tip the scales in the other direction—unless the courts decide to keep us at the mercy of the industry.