Tenth Circuit Affirms False Statement Conviction: Lesson LearnedJanuary 23, 2014
By Anne K. Walsh –
While the mid-Atlantic region was paralyzed under 4 to 8 inches of snow, it was business as usual for the Tenth Circuit Court of Appeals in Colorado. On January 21, 2014, the court issued an opinion affirming the felony conviction of John Schulte, former CEO of The Spectranetics Corporation, for making a false statement to the government.
The woes of the company date back to 2008, when a former employee alleged that it was marketing unapproved devices brought into the country illegally. The company’s Board of Directors ordered an internal investigation, but the investigation did not result in any finding of wrongdoing. Later that year, the government learned of the same allegations brought to the Board, and quickly executed a search warrant. It was during this search that Schulte voluntarily agreed to provide an interview to federal law enforcement agents. The statements he made during that interview five and a half years ago continue to haunt him today.
As readers may recall (see our previous post here), the company entered into a settlement with the government in 2009 in which it agreed to pay a $5 million civil penalty. The government decided not to criminally prosecute the company, and instead allowed the company to enter into a non-prosecution agreement that required cooperation in the government’s ongoing criminal investigation of certain individuals, including Schulte.
In 2010, the government indicted Schulte on twelve separate counts, but after a four-week jury trial in 2012, a jury acquitted him of all but one of those counts: making false statements under 18 U.S.C. § 1001. The court’s sentence was lenient, requiring only one year of probation, a $5000 fine, and 100 hours of community service. (The court rejected the government’s sentencing request for two years of prison and three years of probation.)
Schulte appealed this conviction on the grounds that the statements were not false, that the government failed to prove the necessary intent to give false information, and that the statements were not material to the government’s investigation. The Tenth Circuit addressed these legal issues in turn, the details of which can be reviewed in the opinion. The court ultimately concluded that there was no fundamental ambiguity about the questions to which Schulte responded, and that there was sufficient evidence provided at trial that the statements Schulte made were false.
The moral of the story is that company employees should be aware of the impact of any communications with the government, whether in the context of a search warrant or a routine site inspection. In the case against Schulte, the law enforcement agent was in possession of very detailed information, as evidenced by the 48-page affidavit that the agent had prepared to support the search warrant. In contrast, Schulte agreed to speak off-the-cuff, without having the benefit of reviewing information to refresh his recollection. The government rejected Schulte’s three attempts to recant or correct those statements after Schulte’s counsel reviewed documents after the interview. It is possible the government was more aggressive against Schulte because it was “offended” that Schulte had lied, which may have been avoided had Schulte been better prepared in advance of the interview.
Company employees should be advised on the importance of candor, and should be well-prepared before talking with the government about any substantive matters. With or without counsel present, all company employees speaking to the government on any topic should avoid the temptation to answer all questions posed by the government. Generally, a company employee has no legal obligation to answer any question unless subpoenaed or ordered by a court. Thus, before answering any question, the employee should be certain that the answer being provided is correct. If there is any doubt, the employee has the right to inform the government that she will need to do further checking before answering the question. Although an employee might want to be “helpful” to FDA, or to her corporate employer, an employee can be (and has been) criminally prosecuted if the information turns out to be untrue, despite good intentions.
Also, with the benefit of hindsight, it is clear that the result of this case would be profoundly different had Schulte not voluntarily spoken with the government. Recall that the underlying focus of the investigation related to allegations that the company and its employees marketed unapproved devices in violation of the Federal Food, Drug, and Cosmetic Act (FDCA). Yet, the company settled the matter with a non-prosecution agreement, likely motivated by the government’s acknowledgement that the evidence supporting an FDCA violation was weak. Schulte was acquitted of eleven of the twelve charges the government brought against him, the majority of which related to counts under the FDCA. With respect to the other indicted individuals, the government dropped all charges against one, the one who proceeded to trial with Schulte was acquitted of all charges, and the last individual pled guilty to a single count of concealing a felony in exchange for probation. Thus, the only two criminal charges that resulted from the government’s intense prosecution and trial did not even relate to the FDCA.
It also bears mention that the jury rejected the government’s theory that Schulte and others were liable under the Responsible Corporate Officer doctrine, a topic which we are following closely (see our previous post here).