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Editor: Katharine Van Tassel
Akron Univ. School of Law

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Wednesday, February 15, 2012

O'Neil and Black on Fraud

We'll focus on the darker corners of medicine this week.  First, Cathy O'Neil's post on Vioxx

Let’s face it, nobody comes out looking good in this story. The peer review system failed, the FDA failed, Merck scientists failed, and the CEO of Merck misled Congress and the people who had lost their husbands and wives to this damaging drug. The truth is, we’ve come to expect this kind of behavior from traders and bankers, but here we’re talking about issues of death and quality of life on a massive scale, and we have people playing games with statistics, with academic journals, and with the regulators.

Just as the financial system has to be changed to serve the needs of the people before the needs of the bankers, the drug trial system has to be changed to lower the incentives for cheating (and massive death tolls) just for a quick buck. As I mentioned before, it’s still not clear that they would have made less money, even including the penalties, if they had come clean in 2000. They made a bet that the fines they’d need to eventually pay would be smaller than the profits they’d make in the meantime.

Second, William K. Black on the French entrepreneur extraordinaire behind the breast implants controversy

Control frauds occur when the persons controlling a seemingly legitimate entity use it as a “weapon” to defraud. Such frauds occur in the private, NGO, and public sector. I write primarily about accounting control frauds because accounting is the “weapon of choice” for financial control frauds. . . . 

Shareholders and creditors are the primary intended victims of accounting control fraud, which creates record, but fake profits. Other forms of control fraud create real profits. Anti-purchaser control frauds target the customer and involve deception as to the quality and/or quantity of the product. Anti-public control frauds target the public. Illegal logging, the illegal seizure and exploitation of mines, and purchasing goods one knows are likely to be stolen are examples of frauds designed to harm primarily the public. . . .

Poly Implant Prothese (PIP) was a French manufacturer of saline and silicone breast implants. The FDA found severe problems with PIP’s production of saline implants a decade ago and alerted PIP and its French regulatory counterpart to the problems in 2000. The FDA described the saline implants as “adulterated” due to eleven flaws in its manufacturing processes.. . . 

PIP did not inform its poorer customers that it was illegally selling them inserts made with cheaper, unapproved industrial-grade silicon.  PIP also did not inform its customers that “the casing around the filling was also faulty and prone to rupture or leakage'” 

No sooner had [PIP's CEO] (for the second time) been found to have endangered his customers, than he was planning to go back into the business of producing and selling breast implants. [His business plan described the CEO] as a "creative genius". . . It takes a special kind of depravity to describe oneself as a “creative genius” after a life of defrauding one’s customers through means that put their health at undue risk.

Both are very troubling cases. [FP]

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