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Wrong Prescription

The sweet deal a local medical firm got from the Justice Department shows how soft the Bush administration really is on corporate crime

By Matt Smith 

Let's say you're happily planting tomatoes, stalking an ex-boyfriend, or whatever it is you do, when a vein in your brain sprouts a bulge like a raspberry and turns your vision dark. To prevent this cerebral aneurysm from rupturing and killing you, a doctor threads a catheter through a vein in your leg, up through your torso, and into your head. If everything goes right, she pushes minuscule coils of platinum alloy wire through the catheter toward the area of the bulge.

Were your brain fully functioning at this time, you might think that your doctor chose to shove this particular brand of so-called embolic coil through you because she believed it was the best possible way to block blood flow to the aneurysm, prevent a rupture, and save your life.

You certainly wouldn't wish to imagine your doctor made her choice based on a medical equipment manufacturer's bribe.

A recent case involving a Sunnyvale company that makes a version of the aforementioned embolic coil device, however, suggests our government could take a far sterner stance combating the practice of medical payola, in which medical companies bribe doctors to choose one brand of device or medicine over another.

Earlier this month, the U.S. Justice Department entered into an unusual agreement with the medical device manufacturer Micrus Corporation after the company admitted to bribing doctors in France, Turkey, Spain, and Germany to have their hospitals purchase Micrus' embolic coil devices.

Micrus paid more than $105,000 to foreign physicians, disguising the payments on the company's books as stock options, honorariums, and commissions, according to a Justice Department press release. Rather than prosecute the company under the Foreign Corrupt Practices Act, which makes such overseas bribery a crime, the Justice Department entered into an unusual "nonprosecution agreement," in which prosecutors agreed to drop charges in exchange for a $450,000 fine and a promise that the company won't commit the same crime again.

Justice Department spokesman Bryan Sierra said the Micrus nonprosecution agreement is the result of a specific government policy aimed at preserving American jobs and bolstering U.S. stock prices by not criminally prosecuting corporate wrongdoers.

According to a 2003 Justice Department memorandum, issued after the January 2002 indictment of the accounting firm Arthur Andersen and its subsequent downfall, prosecutors were to consider "collateral consequences, including disproportionate harm to shareholders" when considering whether to indict corporations accused of crimes.

"Some companies might be forced to go out of business, fire employees, or reduce value to shareholders," Sierra said. "That's one of the factors you have to consider: Are you having an unintended consequence on the overall economy if you indict a corporation blindly?"

In this context, Sierra said, the Micrus settlement was fair. The $450,000 fine was a severe one, he said, and the Justice Department reserves the right to prosecute should Micrus engage in future criminal activity.

The fine represents only a fraction of the company's sales in the region they were handing out illegal payola. Last year, European sales made up $7 million, or more than 40 percent of Micrus' total 2004 revenues.

Micrus did not return calls seeking comment for this column.

Outside the floodlight of last week's conviction of Bernie Ebbers, the stock-rigging CEO of WorldCom, and the upcoming, sure-to-be-high-profile prosecution of Enron's Ken Lay, there remains a vast prosecutorial darkness, in which companies continue to cause illegal harm and largely get away with it. Though its ex-CEO may go to the clink, WorldCom the company is essentially getting off; as with Micrus, instead of suffering criminal prosecution, the company entered settlements with the government involving fines and promises to change its ways. The settlements may even allow WorldCom to use U.S. bankruptcy laws to shed debt it illicitly racked up during the Ebbers era. For all the rough talk from Bush Administration officials -- toward the U.N., toward Muslim states, toward a host of other perceived enemies -- companies that engage in behavior that harms Americans seem to get a near-automatic pass.

Nonprosecution agreements such as Micrus Corp.'s "are sending the wrong message to the corporate community in that you can engage in felonious wrongdoing and save the company," said Russell Mokhiber, who edits the newsletter Corporate Crime Reporter and who believes such agreements fail to deter corporate crime. "Shareholders and corporations can benefit from criminal wrongdoing, so they should suffer when they're caught."

Though Micrus was caught, it doesn't seem to have suffered appreciably. Lack of apparent prosecutorial verve may be partly to blame. A portion of blame also goes to a U.S. regulatory environment that is far feebler than conservatives make it out to be, even when it comes to behavior as rotten as the skewing of medical judgment via corporate payola.

Two days after entering the nonprosecution agreement with the Justice Department, Micrus announced a $57.5 million initial stock offering, as if to shout that there's no shame in investing in a company that's admitted to multiple counts of bribery, so long as the company has a get-out-of-court-cheap card from the federal government.

There's apparently little shame in supervising the sales force of a company that bribes doctors, either. In recent financial filings, Micrus announced that it had fired its CEO and its vice president of global sales and marketing in connection with the bribes to foreign doctors. A couple of months after marketing VP Herbert Mertens was fired, however, he resurfaced as sales and marketing vice president of Endologix Inc., a California aneurysm-device company founded and, until not long ago, led by current Micrus board chairman Michael R. Henson. Mertens did not return two calls requesting comment.

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