There is such an unbelievable proliferation of legislation and regulations across the United States, whether federal or state-based, that it can be difficult for companies to know when they might be running afoul of the law. It could be a relatively new piece of legislation that businesses are not aware of, or an obscure law that’s been on the books for some time but is unknown to most CEOs. In addition, some laws and regulations actually don’t require knowledge or intention for a finding of guilt.
Even if they follow due diligence by following the advice of counsel, or interpreting the law the way others in their industry have done, heads of companies are still not assured that prosecutors will interpret the law in the same way. Prosecutors may still decide to charge company leaders with violations—which, of course, can have serious consequences and even result in jail time.
Let’s take a look at the experience of Howard Root and Vascular Solutions.
How it began
Howard Root was the CEO of Vascular Solutions, a highly successful business that created over 100 medical devices and employed well over 500 Americans. During their 20 years in business, the company’s inventions had saved and improved the lives of countless patients. In 2011, a whistleblower came forward to the United States Department of Justice (DOJ) and suggested that Vascular Solutions was fraudulently marketing one of their products: the Vari-Lase Short Kit. The individual was an ex-employee who went to work for a competitor and subsequently alleged that Vascular Solutions was promoting the FDA-approved product for an off-label use.
In 2009, Root had sent this former employee a cease-and-desist letter in relation to breaching the non-compete clause in his contract in his new position. Shortly thereafter, the former employee wrote back claiming that Vascular Solutions was promoting off-label use of the product in question. Root looked into the matter and found the allegation false. He secured and followed the advice of in-house counsel.
Doctors are able to prescribe drugs and employ medical devices for uses other than what the FDA has approved—this is an extremely common and legal practice. According to WebMD, more than one in five outpatient prescriptions in the US are for an off-label use. In addition, Vascular Solutions sales representatives were legally permitted to describe the helpful off-label uses of their products, and the company was allowed to ship products to doctors for off-label use. Federal prosecutors acknowledged these facts. Even so, the matter did not end there.
Despite the evidence that the allegations levelled against the business were ill-conceived and had no substance, federal prosecutors persisted to launch a case against Vascular Solutions. The Vari-Lase Short Kit represented less than 1% of the company’s sales—and more importantly, it had never harmed one patient. Moreover, there were no claims made by federal prosecutors that patients were ever harmed. The product was used by doctors in their offices to treat patients with varicose veins. The marketing question centered around how a varicose vein was defined.
It’s critical to understand that most companies faced with the predicament of being criminally charged in similar circumstances opt for a plea bargain to keep the matter out of court. Not only is going to court cost-prohibitive for most CEOs, but the resulting publicity can have an incredibly negative impact on business. However, Howard Root was in a financial position to choose a different path, and that’s just what he did. All told, it cost him $25 million in legal fees, the efforts of 121 lawyers, and five years to take the legal battle to a jury trial.
What was on the line for Vascular Solutions and its CEO was significant. If convicted, Howard Root was facing years in prison, and the company would have been out of business—a human cost not only for the CEO, but also for the many patients for whom the company’s devices were a lifeline. Furthermore, continued research and invention of products would have halted. It’s also pertinent to note that if Root was found guilty, the whistleblower stood to gain approximately $5 million of the $20 million the government claimed it had been defrauded of with false claims. This would have been a substantial windfall for the former employee.
Fortunately, after only one day of deliberation, the jury returned with a not guilty verdict, meaning that Root and his company were acquitted of all wrongdoing. The prosecution was covered by The Wall Street Journal and commenters expressed outrage at the federal prosecutors. A congressional investigation was convened. Since that time, Root has sold Vascular Solutions for $1 billion, which has paved the way for the good work of the company to continue. He now writes articles and speaks widely on his experiences, to raise awareness of the issue of unchecked prosecutorial misconduct within the DOJ.
“When prosecutors can use false criminal charges to destroy everyone except the few wealthy and unbroken defendants like me, then virtually everyone is in danger—even if you’ve done nothing wrong,” he has said.