Criminal Liability Of Pharmaceutical Executives Under The Controlled Substances Act

• Published date: 06 June 2022
• Subject Matter: Corporate/Commercial Law, Food, Drugs, Healthcare, Life Sciences, Criminal Law, Compliance, Corporate and Company Law, Food and Drugs Law, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Butler Snow LLP
• Author: Ms Amanda Barbour and W. Harrison Webb

I. Introduction

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.¹When 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.²Doud 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.³

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.⁴

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 . ."⁵
• 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 ."⁶
• 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 . . ."⁷

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."⁸

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.⁹The 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.¹⁰

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...