Wall Street Journal - August 4, 2005
David Armstrong, david.armstrong@wsj.com

Swiss-based Serono has already set aside $725 million for the settlement, which would be one of the largest in a federal campaign to stamp out unethical marketing of drugs. But the unusual conflict among the whistle-blowers in the case threatens to delay settlement, which concerns allegations that Serono fraudulently marketed its AIDS-wasting drug Serostim.

The tension between the AIDS group and the five former employees who filed whistle-blower claims against Serono comes as some prosecutors have complained privately that the bounties for reporting wrongdoing have grown too big. Conservative groups have called for a cap on the rewards, arguing informants may be allowing frauds to go on longer so their recoveries can be bigger.

The payout to the whistle-blowers in the Serono case is expected to total between $70 million and $80 million, said people familiar with the settlement talks. That would make one of the five largest ever.

The False Claims Act, a federal law that provides rewards for informants, or whistle-blowers, has been instrumental in the government's antifraud campaign. Medicare and Medicaid, the government's health-insurance programs, have recouped at least $4.7 billion in settlements of fraud cases initiated by whistle-blowers under the law.

In the Serono case, the AIDS Healthcare Foundation of Los Angeles is claiming it is entitled to $3 million of the whistle-blower award for its work in curbing Medicaid reimbursement for Serostim, which the group argued was overpriced and of little efficacy. The group has also argued it will use the money to help AIDS victims, while the payments to the former company employees will be pocketed by the individuals, those people say.

In April, four former top Serono executives were indicted by a federal grand jury in Boston for allegedly offering kickbacks to doctors in exchange for writing prescriptions for Serostim. The executives allegedly offered trips to doctors and their guests to attend a medical conference in Cannes, France, in 1999 if they prescribed the drug. Last December, a former sales director pleaded guilty to violating antikickback laws for participating in the same scheme.

AIDS Healthcare filed a lawsuit under the False Claims Act against Serono in 2003, but that was three years after the first employee of the company had filed such a complaint. Most of the other employees filed their complaints within weeks of the first employee. All of the whistle-blower complaints have been sealed.

The government typically allows whistle-blowers to decide among themselves how to allot reward money. But according to people familiar with the Serono case, the foundation turned down an offer of $500,000 from the former employees. The foundation has indicated it wouldn't settle for an amount below $1 million.

The employees and AIDS Healthcare, at the urging of federal prosecutors, recently attempted to settle their differences. But on July 27, a lawyer for some of the employees notified the foundation it was filing a motion to dismiss the foundation's whistle-blower case. That motion, which is also sealed, is pending in U.S. District Court in Boston.

"We are truly sorry we have been forced into this showdown," wrote the attorney, Carl Valvo of Boston. He later added "that whatever positive disposition ... our clients may once have had" toward the AIDS group "has largely been dissipated as a result of what they perceived to be threats to question and delay the settlement ... and to make mischief in general unless [it] got what it wanted."

Mr. Valvo declined to comment on his letter. Thomas Myers, the general counsel for the AIDS foundation, also declined to comment.

A federal appeals court in San Francisco is currently considering a case involving another fight between whistle-blowers in a case that led to a $54 million settlement with Tenet Healthcare Corp. In that case, the first whistle-blowers to file were a priest and his friend, who went to the Federal Bureau of Investigation with concerns that a local surgeon was performing unneeded surgery. Days later, a doctor filed his own complaint, making similar kinds of allegations.

The government successfully moved to have the doctor's action dismissed. He has appealed that decision, arguing he had been investigating the alleged fraud for a long period of time and provided more comprehensive information than the priest and his friend. The $8.1 million whistle-blower award in that case, which was settled in 2003, is being held by the government until the doctor's appeal is exhausted.

A Serono spokeswoman said that discussions with the government regarding the Serostim case are continuing, and that the company is cooperating with the government. A spokeswoman for the U.S. attorney in Boston, who is conducting the Serono investigation, declined to comment.

"Squabbling among whistle-blowers doesn't look good," says Jim Moorman, the president of Taxpayers Against Fraud, a Washington nonprofit group that supports the efforts of whistle-blowers. At the same time, he says, the law "was not designed to reward Boy Scouts and Girl Scouts. It is to get people to bring forth the information."

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