Corporate Counsel Quotes Elizabeth Scott on Fallout for PE Firms from DOJ Intervention in FCA Suit

March 27, 2018

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Akin Gump litigation partner Elizabeth Scott was quoted in the Corporate Counsel story “What DOJ Intervention in FCA Suit Means for Private Equity Firms.” The article examines a False Claims Act lawsuit, in which the Department of Justice decided to intervene, against a private equity firm as the majority owner of a pharmacy allegedly involved in a fraudulent scheme.

As the article reports, the plaintiff-relators allege that the company in question provided about $40 million in illegal kickbacks to several marketing agencies, in exchange for military member patients as well as prescriptions that would be reimbursed by a military insurance provider. The government announced its intention to intervene in December 2017.

Scott said the government’s complaint provides important information “about when a private equity firm’s involvement in the operations of one of its portfolio companies is enough for the government to go after the firm for the company’s alleged misconduct.” As for whether this is an indication of any new trend in government intervention in FCA litigation, she said, “This could indicate a shift, but we’re in a wait-and-see mode at this point. We’re waiting to see, ‘Is this an outlier, or will they start pursuing other third-party companies with an investment or auditor interest?’”

Despite the uncertainty, there are some steps that Scott said private equity firms and their top lawyers can take to ensure they are not the next target of the government’s decision to intervene in such a case. They include:

  • making sure your due diligence continues beyond the initial investment
  • requiring that all portfolio companies that do business with the federal government have robust internal compliance policies in place and prepare reports about those policies
  • being aware of any significant uptick in revenue related to federally reimbursable products and perform due diligence to ensure that the management is engaging in proper compliance efforts

To read more about this case, click here for an Akin Gump client alert co-authored by Scott.

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