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How can the government reach a deferred prosecution agreement with a company that denies it did anything wrong? That’s the question raised by the apparently unprecedented DPAs that a federal prosecutor recently signed with several manufacturers of orthopedic implants. On Sept. 27, Christopher Christie, the U.S. attorney for New Jersey, filed DPAs with four of the companies, a nonprosecution agreement (NPA) with a fifth, and accompanying civil settlements with all five. The businesses control 95% of the market for implants used in hip and knee surgeries. According to Christie’s office, from 2002 to 2006 the manufacturers funneled tens of thousands of dollars through consulting agreements to unidentified surgeons who used their products. Christie’s staff says that the payments violated an anti-kickback provision in the Medicare fraud statute. The five prosecution agreements are notable for a number of reasons. For one, they helped the U.S. Department of Justice set a record for DPAs and NPAs in 2007. For another, four of the manufacturers will each pay hefty fines of up to $170 million. Plus, all five of the companies have hired a prominent monitor (the best-known being former U.S. Attorney General John Ashcroft) to make sure that they implement various corporate governance reforms. But the most notable aspect of the deals is that none of the manufacturers admits that it did anything wrong. In fact, the manufacturers deny it. In not one of the 49 deferred prosecution agreements that Corporate Counsel an affiliate of The National Law Journal, has been able to identify, did the companies deny that their employees committed crimes. In return, the Justice Department agreed to hold off on pursuing the case, and to dismiss the charges if the business stayed out of trouble during the term of the pact. However, that trend changed with the DPAs that Christie’s office signed with Zimmer Holdings Inc.; DePuy Orthopaedics Inc.; Biomet Inc.; and Smith & Nephew PLC. Christie actually allowed the four companies to deny making illegal payments as part of the civil settlements that are attached to the DPAs. Chad Phipps, general counsel at Zimmer, says the denial language was negotiated as part of the settlement, and he wouldn’t elaborate on it. Representatives for the other companies also wouldn’t comment. Zimmer, DePuy and Biomet are all based in Warsaw, Ind. Smith & Nephew is based in London, with a subsidiary in Memphis, Tenn. Four denials In identical language in the four DPAs, each company “acknowledges responsibility for its behavior.” But in the attached civil settlements, each “denies that it engaged in any wrongdoing and specifically denies that any of the payments, services, or remuneration were illegal, improper, or resulted in any false or fraudulent claims.” And all four state in their civil deals that they settled only because they wanted to “avoid the delay, uncertainty, inconvenience, and expense of protracted litigation,” and not because they believe they did anything wrong. The fifth company targeted by Christie’s probe � Stryker Orthopedics, a division of Howmedica Osteonics Corp., based in Mahwah, N.J. � was rewarded with a comparatively lenient nonprosecution agreement because it was the first to voluntarily cooperate with the government. Past NPAs negotiated by the Justice Department have sometimes included an admission of guilt; Stryker’s does not. The terms of the four DPAs are surprising to several experts. Lawrence Finder, a former U.S. attorney who is now a partner in Dallas-based Haynes and Boone’s Houston office, calls the denials of guilt “curious.” Finder, who co-authored a study of DPAs and NPAs in 2006, can’t recall any other DPA that allowed a company to deny guilt. Peter Henning, a veteran of both the Justice Department and the U.S. Securities and Exchange Commission who is now a professor at Wayne State University Law School, agrees that the companies’ denials are “odd.” Henning, the co-author of a popular white-collar crime blog, said that letting businesses deny behavior “can come back to haunt [the government] down the road” and “can undermine later prosecution.” Michael Drewniak, a spokesman for Christie’s office, countered that companies are “routinely allowed to deny wrongdoing in Medicare or Medicaid fraud civil settlements.” But those civil settlements are usually not attached to a deferred prosecution agreement. “I’ll just leave it at that,” Drewniak said, declining to elaborate. Rather than push for admissions of guilt, Christie apparently chose to use his muscle to win 20 pages’ worth of corporate governance reforms. Key among them: All five companies had to hire federal monitors to supervise the reforms, and those monitors were chosen by Christie “after consultation with the company.” The list of monitors is a high-powered one. It’s topped by Zimmer’s monitor � former Attorney General Ashcroft, now chairman of the Ashcroft Group LLC, a management consultant group in Washington. Ashcroft also has a law firm that will help with the monitoring. Asked about the denial language in the DPAs with the orthopedic companies, an Ashcroft spokesman said simply, “Well, the U.S. attorney could hardly indict them all and put 95% of the U.S. orthopedics market out of business, could he?

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