SEC Settles FCPA Action

The Commission filed a settled FCPA enforcement actions just prior to the July 4th holiday. The action centered on false books and records and inadequate internal controls, although the Order speaks of bribery. In the Matter of Alexion Pharmaceuticals, Inc., Adm. Proc. File No. 3-19852 (July 2, 2020). The Order also presents unanswered question regarding compliance with the Supreme Court’s recent decision on disgorgement in Liu v. SEC, No. 18 – 1501 (Decided June 22, 2020).

Alexion is a global biopharmaceutical company. Drugs developed by the firm serve patients with life-threatening, rare and ulta-rare diseases. The transactions here involve a drug called Soliris, developed and approved to treat two diseases, paroxysmal nocturnal hemoglobinuria or PNH and atypical hemolytic uremic syndrome or aHUS.

Sales of Soliris during the period 2010 through 2015 were effected through local subsidiaries. In Turkey the firm entered the market in 2009. Sales lagged. The next year a senior Ministry of Health official suggested making payments to government officials.

The firm retained a consultant who was paid over $1.3 million, portions of which went to local government officials. Two employees of the local subsidiary made some of the payments to the consultant by having local reimbursement records falsified. To facilitate that process the records were made in pencil. Little documentation was furnished to substantiate the claim that expenses were being reimbursed. The managers, in addition to the consultant, were compensated for their services. Overall, the Turkish subsidiary of the firm was “unjustly enriched by over $6.6 million” as a result of the scheme, according to the Order.

In Russia, the local subsidiary of the firm also paid officials to sell the drug. Soliris was sold through an NPS process. Reimbursements were made through regional healthcare spending. The regions had to allocate funds to Soliris in the local budget.

The Alexion subsidiary paid HCPs employed at state-owned healthcare institutes for various services. Some of those officials also provided expert opinions relied on by the local officials making budget allocations. Alexion’s Russian subsidiary thus made over $1 million in payments to these officials over a four-year period, beginning in 2011, to increase the number of approved prescriptions. The payment records were falsified. As a result, Alexion was “unjustly enriched by over $7.5 million” through its Russian subsidiary.

Finally, in the firm’s Brazil and Columbia subsidiaries, the record and control systems were inadequate. This permitted employees to divert funds from proper business purposes to other matters. This continued over a two-year period, beginning in 2014. The Order alleges violations of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B).

In resolving the matter Alexion undertook certain remedial efforts and cooperated with the staff’s investigation. For example, the firm provided regular briefings to the staff regarding the facts developed during their investigation. Alexion also strengthened and expanded its global compliance organization, enhancing its polices and procedures.

To resolve the matter, the firm consented to the entry of a cease and desist order based on the sections cited in the Order. Alexion will also pay disgorgement of $14,210,194 and prejudgment interest of $3,766,337. The funds will be paid to the U.S. treasury, “subject to Exchange Act Section 21F(g)(3). The firm will also pay a penalty of $3.5 million. That amount will be paid to the U.S. treasury, “subject to Exchange Act Section 21F(g)(3).

The disgorgement Respondent is required to pay here is described only as “ill-gotten” gains in the Order. There is no indication of the manner in which the sums were tabulated. Those sums, along with the penalty imposed are “subject to” an Exchange Act Section dealing with whistleblowers. Whether sums imposed as disgorgement equal the “net profits” as directed by Liu is unclear; if the sums were for victims is not specified, although there is a citation to the whistleblower statutes.

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