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FD&C ACT FELONY ENFORCEMENT AUTHORITY TRANSFERRED FROM FDA TO HHS INSPECTOR GENERAL, FOLLOWING VITARINE FRAUD; FDA CHIEF COUNSEL SCARLERESIGNS

Executive Summary

FDA authority to investigate felony violations of the FD&C Act has been transferred from the agency to the HHS Inspector General, effective July 24. The transfer was made "effective immediately" in a July 24 letter from HHS Secretary Sullivan to Inspector General Kusserow. "I hereby delegate to you . . . the responsibility for conducting investigations of criminal violations of the federal Food Drug & Cosmetic Act for which the penalty is a felony," Sullivan wrote. He also designated the Inspector General's criminal investigators as having authority "to conduct criminal investigations for purposes of 702(e) of the [FD&C Act]." FDA Chief Counsel Thomas Scarlett announced his resignation on July 31, one week after the transfer of authority went into effect. Scarlett's resignation is effective Sept. 1. He has been strongly opposed to shifting enforcement authority to the HHS Inspector General's Office. Scarlett has publicly stated that his decision to resign was not due to conflicts between his office and the commissioner's office, as has been rumored. However, he has not explained the timing of his resignation announcement. FDA chief counsel since 1981, Scarlett is said to have been in danger of being reassigned within HHS. Scarlett was appointed to the the agency's top legal post after two years in the D.C. firm Morgan Lewis & Bockius. He had previously served on FDA's legal staff for six years, beginning in 1973. Deputy Chief Counsel Jeffrey Springer is in line to replace him as acting chief counsel in September. In a July 31 resignation letter to HHS General Counsel Michael Astrue, Scarlett wrote: "I appreciate the opportunity the Office of the General Counsel has given me to be FDA's Chief Counsel for the past eight years and wish you well in your tenure as General Counsel." Astrue, FDA Commissioner Young, and Inspector General Kusserow had signed a July 20 "delegation" memorandum recommending that "the best solution to the problem of overlapping investigative responsibilities is to delegate the responsibility for FDA felony investigations, along with the corresponding FDA law enforcement authorities, to the" office of the Inspector General. * The transfer represents a significant shift of authority. The Inspector General historically has had oversight authority to investigate possible criminal acts by FDA employees or agents under contract to the agency. However, investigation of violations, criminal or otherwise, by FDA-regulated industry has previously been FDA's responsibility. The redelegation also could complicate investigations into possibly felonious acts by industry by adding another layer of enforcement interest to the jurisdiction of FDA and the Justice Department. The turf battle mirrors a dispute between the Labor Department and its Inspector General last March. However, that disagreement was resolved in favor of the department. The Justice Department's former Assistant Attorney General-Legal Counsel Douglas Kmiec wrote a March 9 memorandum on behalf of the Labor Department's Acting Solicitor Jerry Thorn, concluding that the Inspector General should not share general regulatory authority with the Labor Department. "We conclude that the act does not generally vest in the Inspector General authority to conduct investigations pursuant to regulatory statutes administered by the [Labor] Department," Kmiec said. "Congress intended the Inspector General to be an objective official free from general regulatory responsibilities who investigated the employees and operations of the department, as well as its contractors, grantees and other recipients of federal funds, so as to root out waste and fraud." The Inspector General does not have authority for investigations into violations of "statutes that provide the department with regulatory jurisdiction over private individuals and entities that do not receive federal funds," the opinion states. * The Vitarine ANDA sample switch provided the impetus for the transfer of investigation authority, HHS has indicated. In a July 26 memo, the Inspector General's Associate General Counsel Harvey Yampolsky said the move "appeared necessary following questions being raised with regard to the [Inspector General's] investigation of Vitarine Pharmaceuticals, Inc., in conjunction with the U.S. Attorney's Office in Baltimore." The Inspector General was involved due to the Vitarine case's "potential violations of . . . the Program Fraud Civil Remedies Act and, possibly, of the bribery and conflict of interest provisions of the federal criminal code, should the evidence point to involvement by employees of the FDA," Yampolsky noted. However, because FD&C Act violations were also involved, "and because the company under investigation was not a recipient of federal funds, questions were apparently raised regarding" the Inspector General's role in the investigation "in light of" the Justice Department opinion. Yamplosky sees a distinction between the Labor and FDA disagreements with their respective Inspectors General. The Labor Department "dispute involved investigations and circumstances very different from those involved" in the generic drug investigation, Yamplosky said. FDA, the HHS General Counsel, and the HHS Inspector General agreed to the transfer, he explained, and the transfer "is conceptually similar to a number of other redelegations of authority which the secretary has made to the Inspector General over the past several years," including those involving the Social Security Administration and the Health Care Financing Administration. Yamplosky explained that felony violations of the FD&C generally "involve those where the wrongdoer has intentionally misled or defrauded the government." The Inspector General would not investigate "program violations, which are classified as misdemeanors," he said. HHS expects "the distinction between misdemeanors and felonies referenced in the delegation [to] serve as a bright line between FDA and [Inspector General] jurisdiction, respectively," the memo states. * The transfer supersedes an FDA/Inspector General memorandum of understanding from January. The agreement specified that the Inspector General would take the lead in investigations involving organized crime; bribery; fraud, waste and abuse, including cases "which involve FDA-regulated products"; grants and contracts; and fraud by clinical investigators. The memo stipulates that the agencies will act jointly in investigations of FDA employee misconduct, drug diversion and drug counterfeiting. According to testimony of witnesses for the Inspector General and FDA at May 10 and July 11 hearings before the House Commerce/Oversight Subcommittee, the memorandum was delayed because Scarlett felt it required FDA to yield authority to the the Inspector General.
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