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White Collar Watch

RICO Offers a Powerful Tool to Punish Executives for the Opioid Crisis

John Kapoor, the founder of Insys Therapeutics, was found guilty of racketeering charges in a rare criminal prosecution that blamed corporate officials for contributing to the opioid epidemic.Credit...Steven Senne/Associated Press

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The conviction of John Kapoor, the Insys Therapeutics founder, and four other executives at the pharmaceutical firm on racketeering charges this month was a significant step toward imposing substantial penalties on corporate officials for contributing to the nation’s opioid epidemic.

Prosecutors rarely use the Racketeer Influenced and Corrupt Organizations Act, or RICO, in corporate criminal prosecutions because it can be a difficult offense to prove, but the law allows them to pull together disparate defendants into a single case.

And in the prosecution of the Insys executives, the Justice Department was able to bring together a number of different violations — drug distribution, mail and wire fraud, and breach of the duty of honest services — into one case. The RICO conspiracy provision allowed prosecutors to establish that Insys engaged in a long-term plan to distribute Subsys, a fentanyl-based pain reliever that is highly addictive, by bribing doctors and misleading insurers about the needs of patients who were not supposed to receive the drug.

The trial lasted 10 weeks, and the jury deliberated for 15 days, which shows how complicated a RICO conspiracy case can be for prosecutors. Mr. Kapoor’s attorney said the length of the deliberations confirmed “that this was far from an open-and-shut case.”

The next issue will be how much prison time to impose on the defendants. By obtaining convictions under the federal racketeering law, the Justice Department is likely to seek a more significant prison term than typical for corporate misconduct.

To prove a RICO conspiracy, prosecutors must show an agreement to violate other federal laws through what is called a pattern of racketeering activity. The indictment in the Insys case referred to the drug distribution statute as one of the predicate acts for the RICO violation, which may enable the Justice Department to seek a significant prison term for Mr. Kapoor.

The maximum penalty authorized for a RICO violation is 20 years. Under the federal sentencing guidelines, a defendant convicted of a RICO conspiracy will be sentenced based on the underlying criminal violations. For a drug offense, the amount of Subsys improperly prescribed will be a key determinant of the recommended sentence.

For example, if the amount of drugs illegally distributed was more than 36 kilograms, the recommended sentence could be as long as 235 months in a federal prison, which would be just under the 20-year punishment cap in RICO. If the government proves that only a smaller amount of drugs were improperly distributed, that would most likely result in a recommended sentence of at least 10 years.

Insys also received significant income from its sales of Subsys, so if prosecutors focus on the company’s profits from the illegal conduct, the recommended sentence could be as much as 15 years in prison.

Another punishment that could be imposed under RICO is mandatory asset forfeitures of any gains from the illegal activity, which means bonuses and stock awards from the company for meeting sales targets. In addition, prosecutors can seek Mr. Kapoor’s 47 million shares of Insys, which constitute more than a 60 percent ownership stake.

The question now is whether this RICO conspiracy prosecution will become the template for cases against corporate executives for their role in the opioid crisis.

RICO cases require the government to gather evidence that there was a systematic pattern of violations, not just isolated misconduct. That means proving that an enterprise, which can be the company itself, was operated through illegal acts.

The case against Mr. Kapoor and other Insys executives involved extensive testimony about bribes paid to doctors and lies to insurers to get them to pay for the drug, which made it much easier to show a pattern of illegal conduct. But if the violations occur at a lower level in a pharmaceutical company, linking them to the top executives may be difficult.

Nevertheless, the successful prosecution of the Insys executives is sure to embolden the Justice Department to look at RICO.

The breadth of the law, enacted to help fight organized crime, makes it a potentially powerful tool to police the conduct of pharmaceutical firms that helped fuel the opioid crisis. The hefty penalties that can be imposed are a potent stick to get cooperation from those who participated in illegal activity.

For those reasons, it would hardly be surprising if RICO became the tool of choice for federal prosecutors looking to build a case against pharmaceutical executives.

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