“Top Cop” is how every state Attorney General wants to be known. In reality, state AGs have far more authority for civil enforcement than they do for criminal prosecution. Their civil authority can be vast when partnering with federal agencies, utilizing federal enforcement statutes, and coordinating U.S. Department of Justice (DoJ) criminal investigations.
If DoJ however lessens its pursuit of criminal enforcement, will state AGs pick up the slack? Certainly, and companies and executives should consider how to uniquely engage state AGs. Three areas of potential criminal enforcement – false claims, financial fraud and antitrust – provide insight into how state Attorneys General, especially in multi-state coordination, can take outsized action.
State AGs are distinct from federal prosecutors in that most AGs are elected officials. As a result they respond to a mix of legal, policy and political considerations. If DoJ changes its enforcement priorities, state AGs are the ones to hear the public demands for increased aggressive action to protect consumers.
Every state AG enforces a version of unfair and deceptive acts and practices (UDAP) statutes for consumer protection. AGs can further do so through joint enforcement actions with federal agencies such as the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB). AGs can enlarge their enforcement power with multi-state actions, often coordinated through the National Association of Attorneys General (NAAG). On top of this, AGs may use criminal authority as provided under state law.
False Claims / Medicaid and Health Care Fraud
Every state AG office maintains a Medicaid Fraud Control Unit with authority to investigate and prosecute false Medicaid program billings including overbilling and kickbacks. Furthermore, many states have enacted expansive false claims acts for AGs to pursue health care fraud such as off-label marketing.
State AGs participate with DoJ in significant health care fraud actions and recoveries. For example, recent, and massive, DoJ and state AG false claims settlements include: in 2012, GlaxoSmithKline for $3 billion including criminal fines for off-label use, physician kickbacks, and false statements; in 2013, Janssen Pharmaceuticals for $2.2 billion including criminal fines for promoting uses not approved by FDA and physician kickbacks; and in 2016, Tenet Healthcare for $513 million including forfeiture under a guilty plea for kickbacks in return for patient referrals.
Indeed, the 2017 NAAG presidential initiative focused on the healthcare marketplace, including increasing prescription drug costs and actions of companies in the pharmaceutical supply chain. A clear signal of where AGs are primed to enforce.
The magnitude of mortgage fraud investigations in the past decade has certainly highlighted the influence of Attorneys General. State AGs were out in front of their federal counterparts to achieve the $25 billion settlement, often driven by public demands for tougher action. AGs, whether through their own independent authority or in conjunction with state agencies, can investigate financial crimes including tax, insurance, or other types of fraud including investment schemes.
For example, last year the California Attorney General opened a criminal investigation of identity theft when one of the largest U.S. banks created unauthorized accounts. Earlier this year, the 50 state AGs agreed to conclude a multi-state investigation of Western Union wire fraud, only after DoJ obtained a criminal settlement of related violations and $586 million in victim compensation.
State AGs and their NAAG affiliation have participated with federal agencies in the Financial Fraud Enforcement Task Force. If the task force ceased to exist, there is little doubt from recent enforcement history that AGs would step up their own actions.
Recently unsung, state AG antitrust enforcement can come in potent forms. State AGs may bring actions under federal statutes, they may bring actions on behalf of consumers or the state, and they may do so under their own state’s civil or criminal laws. Often AGs conduct parallel investigations with DoJ and the FTC.
DoJ and state AGs maintain a protocol for prosecutorial responsibility, though in the absence of federal interest, states could independently pursue price fixing, bid rigging, and market allocation conspiracy. AGs can do so with injunctions, treble damages, and criminal penalties. For instance, the Michigan AG recently pursued Chesapeake Energy on criminal charges to a settlement while DoJ conducted its own criminal investigation, with an indictment of the CEO.
At the ABA Antitrust meeting this spring, top lawyers from the New York and Tennessee AG offices announced they were ready to fill the gap should the federal government relax its efforts. Appointments and personnel changes at DoJ’s Antitrust Unit and at the FTC will soon bear out those federal priorities.
While awaiting a potential shift in the Administration’s enforcement priorities, companies and executives can take steps now in regard to the broad authority that state AGs possess.
First, listen to what the lawyers in AG offices are listening to. Assistant AGs often develop cases from the same sources you may hear – from a 60 Minutes segment or a New York Times article, from civil complaints filed by plaintiffs’ lawyers, or from legal publications including reports of actions undertaken by other AG offices.
Second, respond to what AGs themselves will respond to. AGs can have extensive sources of information and action whether persistent media inquiries, advocacy group demands, or even congressional oversight hearings that highlight issues nationally.
Third, think as the AGs think. Remember state Attorneys General are public officials affected by a mix of legal, policy and politics. Every AG is uniquely motivated along these lines, and AGs share information and collaborate with one another. Yet AGs are much more accessible than federal regulators and prosecutors. Getting engaged in the world of state AGs to educate and advocate for your business and your industry is the best action a company can take.
Reprinted with permission from the August 2017 edition of Corporate Counsel. © 2017 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited.