By Carol Marbin Miller
February 25, 2016

Federal regulators have fined Gibraltar Private Bank and Trust Company of Coral Gables a total of $4 million for violations of the U.S. Bank Secrecy Act, alleging in two separate complaints that the bank regularly failed to report activities consistent with money laundering.

The U.S. Treasury Department’s Financial Crimes Enforcement Network imposed a $1.5 million penalty. It accuses the Miami-Dade bank of failing to timely file 120 “suspicious activity reports,” or SARs, that corresponded to nearly $558 million in financial transactions during the years 2009 to 2013. Gibraltar’s failure to file the reports, the government said, may have helped former Fort Lauderdale attorney Scott Rothstein reap $1.2 billion in a Ponzi scheme that landed him a 50-year federal prison sentence.

“We may never know how that scheme might have been disrupted had Gibraltar more rigorously complied with its obligations under the law,” Jennifer Shasky Calvery, director of the financial crimes enforcement network, said in a written statement. “This bank’s failure to implement and maintain an effective [anti-money laundering] program exposed its customers, its banking peers, and our financial system to significant abuse.”

In a separate but “coordinated” action, regulators said, the federal Office of the Comptroller of the Currency, or OCC, issued a $2.5 million civil monetary penalty against Gibraltar Thursday. In 2014, the OCC placed Gibraltar under a consent order. The OCC’s penalties flow from a May 2010 investigation by the OCC’s predecessor, the Office of Thrift Supervision, that found widespread “failure” to file reports of suspicious activity, court records say.

Gibraltar’s chairman and CEO, Adolfo Henriques, did not return calls from the Miami Herald Thursday.

The fines, announced Thursday, add to other recent woes at the bank. Late last week, the bank’s founder and former CEO, Steven D. Hayworth, sued the bank in Miami’s federal court, alleging that the bank made Hayworth a scapegoat for the Rothstein Ponzi scheme scandal, forcing his departure, and breaching their obligations to him under contract. Rothstein, who was convicted of fraud in 2010, was a bank investor.

Hayworth left the bank in 2012. Current chairman Henriques joined the bank in 2011 as vice chair and was promoted when Hayworth departed.

Under federal banking law, financial institutions must “establish and implement an effective anti-money laundering compliance program as required by the [Bank Secrecy Act] and its implementing regulatations,” federal regulators wrote in a court filing assessing the penalty. “Gibraltar failed to establish and maintain adequate internal controls to assure ongoing compliance, and it did not provide adequate training for appropriate personnel.”

Gibraltar’s missteps were discovered in May 2010, the pleading says, when the then-Office of Thrift Supervision conducted an examination of the bank’s records. Four investigations conducted from 2011 through 2014 identified similar “significant deficiencies” in the bank’s compliance with reporting requirements. Flooded with a “large volume” of suspicious activity “alerts” — many of them “false positives” — the bank became unable to identify which banking activities were truly high risk, the pleading says.

Though Gibraltar had been warned that its monitoring system was deficient as early as 2010, the court record says, the deficiencies were “not fully rectified until mid-2014.”

“This FinCEN assessment shows how critical it is to have an anti-money laundering compliance program that actually works and that can withstand government scrutiny, as opposed to one that’s just something a bank has down on paper, which is exactly the type of programs that Ponzi schemers and other white collar criminals look to take advantage of,” said Andrew Ittleman, founder and partner at Fuerst, Ittleman, David and Joseph, who concentrates his practice in the areas of White Collar Criminal Defense and Anti-Money Laundering Compliance.

By Carla Vianna and Celia Ampel
January 15, 2016

For international buyers purchasing luxury condominiums in Miami, new federal regulations aimed at removing secret identities on deals worth more than $1 million threatens to slow an already-lagging housing market.

What’s become routine in Miami’s cash-happy luxury housing market will get federal scrutiny with the U.S. Treasury Department peeling back a layer of secrecy on high-end deals with no names attached.

The U.S. Treasury Department’s Financial Crimes Enforcement Network issued orders Wednesday requiring title companies to disclose the names behind limited liability companies making the big-dollar home buys starting March 1 in two places — Miami-Dade County and Manhattan.

While luxury brokers are wary of the effect the order will have on their international clients, most of whom prefer anonymity when closing multimillion-dollar deals, title companies called for clarification Thursday.

Title companies must report the identity of the person primarily responsible for the purchase along with a driver’s license or other form of identification, according to the American Land Title Association. If an LLC is involved, the underwriter must provide the name, address and taxpayer identification number of all its members.

The report also must include the closing date, address, purchase price and down payment amount. The title companies are required to keep the records for five years.

The association’s CEO, Michelle Korsmo, said title companies are looking forward to helping FinCEN crack down on money laundering, but they need clarification on the orders.

Title insurance companies worry the definition of residential real estate may be murky, and they hope trusts will be excluded from FinCEN’s look at “legal entities” used as shell companies. A trust is not considered a separate legal entity under common law in several states, the group wrote FinCen in response to the orders.

“We urge FinCEN to use a reasonable and good-faith test for determining insurers’ compliance with this order,” ALTA wrote. “We believe the clarifications requested and joint education with the insurer and FinCEN should ensure that all covered transactions that the insurer is aware of will be reported; however, even with the best efforts of title insurers, there may be transactions of which the insurer is not made aware.”

The rate of cash deals in Miami is twice the national average primarily due to the volume of international buyers, according to the National Association of Realtors. About 27 percent of all U.S. housing sales were cash deals compared to about 55 percent of Miami sales in November 2015. About two-thirds of Miami condominium and 40 percent of single-family home sales were cash.

“We are seeking to understand the risk that corrupt foreign officials or transnational criminals may be using premium U.S. real estate to secretly invest millions in dirty money,” FinCEN Director Jennifer Shasky Calvery said in a statement. “Over the years, our rules have evolved to make the standard mortgage market more transparent and less hospitable to fraud and money laundering. But cash purchases present a more complex gap that we seek to address.”

Luxury broker Ben Moss with ONE Sotheby’s International Realty said most Miami brokers have probably run into a situation where a thought crossed their minds: “How does this person have this kind of money?”

Sales Slipping

Miami luxury condo sales decreased nearly 15 percent in the third quarter of 2015 from the same period in 2014. In the same quarter last year, the number of $1 million-plus condo listings grew to 1,791, the Miami Association of Realtors reported.

If buyers are no longer allowed to remain anonymous, local real estate professionals say the order may do more than scare away dirty money. It may scare off South Florida’s top investors.

“There’s a good possibility that it could chill residential purchases with cash in the community,” said Marta Alfonso, a principal in the management advisory services department at accounting and consulting firm Morrison, Brown, Argiz & Farra.

Closing a luxury home deal using an LLC is the standard route most international buyers are advised to take for a variety of reasons from tax planning to shielding ownership, said William Hardin, director of the Florida International University Hollo School of Real Estate.

“This is a very normal transaction, especially if you are a foreign resident,” he said. “It’s a very legitimate use of an LLC.”

For example, the top sale in Key Biscayne in 2015 was purchased by Boca Breeze LLC for $47 million. The buyer was registered in Delaware, where corporate records do not list principals.

Florida LLCs must list owners, but some records link to untraceable Delaware LLCs.

Moss said many of his Latin American clients buying under the protective shield of an LLC have legitimate security concerns.

“Even though they’re coming to South Florida, they still feel they need to shield who they are,” he said. “Some of these people are targets in those countries. They don’t want anyone to know when they’re here or where they live when they’re here.”

Seasoned high-end buyers in Florida have learned to completely shield their names by listing an attorney or accountant as a registered agent on state Division of Corporations LLC paperwork and no corporate officers, Moss said.

“Some people are just very private,” he said. “I would imagine that they’ll keep trying to find ways to get around this.”

Alfonso speculated, “You might see an increase in activity before the requirement takes effect.”

Joseph Hernandez, a partner and chair of the real estate group at Weiss Serota Helfman Cole & Bierman in Coral Gables, said a few of his Brazilian clients struggle to move their money out of the country, and the new regulation is bound to make it tougher.

Legitimate buyers with money from legitimate sources shouldn’t have a problem, but it’s too soon to tell if this will have a chilling effect on legitimate buyers who prefer anonymity, he said.

Although Realtors require buyers to show proof of funds before a closing, they don’t necessarily track where those funds came from.

Serious Look

“In the long run, it’s a positive thing to have transparency,” Hardin said. “I would argue that transparency is an important thing for any real estate market.”

FinCEN’s announcement emphasized it chose to target title insurers because they are involved in most real estate transactions, not because of any suspicion that the companies are complicit in fraud.

“To the contrary, FinCEN appreciates the assistance and cooperation of the title insurance companies and the American Land Title Association in protecting the real estate markets from abuse by illicit actors,” the statement read.

But the new rules could hinder business for title insurance companies, Miami attorney Andrew Ittleman of Fuerst Ittleman David & Joseph said.

“If I’m the title company, I’m taking a really serious look at how much of my business this all-cash transaction is,” he said. “If I really want to keep it, I have to make a decision as to whether I’m willing to take on the enhanced risk of a transaction that is subject to a high level of government scrutiny.”

Ittleman represents clients who are targets of money laundering investigations and advises financial institutions and other businesses on anti-money laundering compliance. He noted the geographic targeting order, or GTO, is the third in the past year that FinCEN placed on Miami, likely due to its reputation as the “Silicon Valley of fraud.”

Last summer, FinCEN ordered check-cashers to look more closely at tax refund checks, and before that another order was issued for Miami businesses that export computer parts to Latin America.

What Took So Long?

Regardless of how FinCEN’s geographic targeting order is enforced, national media coverage has already put doubts in the minds of would-be cash buyers who value their privacy, Ittleman said.

“It’s as high-profile as it gets,” he said. “Even without any enforcement of the GTO, the GTO has an impact. The GTO has a chilling effect on these transactions. That’s already happened.”

But Marcos Jimenez, a McDermott Will & Emery partner and former Miami U.S. attorney, said proper enforcement will count for a lot when it comes to making a dent in money laundering.

Jimenez said enforcement would probably be similar to the process retailers use to report cash sales above $10,000 and banks’ currency transaction reports for large deposits and withdrawals.

Title insurance companies will be required to submit a form identifying the beneficial owner, and the preparer could face a federal felony charge for a violation.

Jimenez said the big question about FinCEN’s order was, “What’s taken them so long?”

“I know that people in the banking and financial world have been wondering about this for probably decades, at least 20 years,” he said. “It’s something that I think U.S. business has looked the other way about for a long time because the more money that comes in here, obviously the better it is for our economy.”

Former federal prosecutor Theresa Van Vliet agreed, saying shell companies concealing beneficial owners have been an obstacle to law enforcement investigations for years.

“Folks who have proceeds of crimes to hide have been using front people or shell companies, whether they’re in the U.S. or offshore companies, since the dawn of time,” said the Genovese Joblove & Battista attorney, who focuses her Fort Lauderdale practice on white-collar litigation and civil and compliance matters.

The focus on title insurers is a “no-brainer,” she said, and setting the threshold at $1 million will help weed out clean-money transactions. But it’s important to remember the reporting requirements are just a first step in a potential investigation.

“Just because someone pays all cash doesn’t mean they’ve done something wrong,” Van Vliet said.

“There’s a good possibility that it could chill residential purchases with cash in the community,” said Marta Alfonso, a principal in the management advisory services department at accounting and consulting firm Morrison, Brown, Argiz & Farra.

Closing a luxury home deal using an LLC is the standard route most international buyers are advised to take for a variety of reasons from tax planning to shielding ownership, said William Hardin, director of the Florida International University Hollo School of Real Estate.

“This is a very normal transaction, especially if you are a foreign resident,” he said. “It’s a very legitimate use of an LLC.”

For example, the top sale in Key Biscayne in 2015 was purchased by Boca Breeze LLC for $47 million. The buyer was registered in Delaware, where corporate records do not list principals.

Florida LLCs must list owners, but some records link to untraceable Delaware LLCs.

Moss said many of his Latin American clients buying under the protective shield of an LLC have legitimate security concerns.

“Even though they’re coming to South Florida, they still feel they need to shield who they are,” he said. “Some of these people are targets in those countries. They don’t want anyone to know when they’re here or where they live when they’re here.”

Seasoned high-end buyers in Florida have learned to completely shield their names by listing an attorney or accountant as a registered agent on state Division of Corporations LLC paperwork and no corporate officers, Moss said.

“Some people are just very private,” he said. “I would imagine that they’ll keep trying to find ways to get around this.”

Alfonso speculated, “You might see an increase in activity before the requirement takes effect.”

Joseph Hernandez, a partner and chair of the real estate group at Weiss Serota Helfman Cole & Bierman in Coral Gables, said a few of his Brazilian clients struggle to move their money out of the country, and the new regulation is bound to make it tougher.

Legitimate buyers with money from legitimate sources shouldn’t have a problem, but it’s too soon to tell if this will have a chilling effect on legitimate buyers who prefer anonymity, he said.

Although Realtors require buyers to show proof of funds before a closing, they don’t necessarily track where those funds came from.

Serious Look

“In the long run, it’s a positive thing to have transparency,” Hardin said. “I would argue that transparency is an important thing for any real estate market.”

FinCEN’s announcement emphasized it chose to target title insurers because they are involved in most real estate transactions, not because of any suspicion that the companies are complicit in fraud.

“To the contrary, FinCEN appreciates the assistance and cooperation of the title insurance companies and the American Land Title Association in protecting the real estate markets from abuse by illicit actors,” the statement read.

But the new rules could hinder business for title insurance companies, Miami attorney Andrew Ittleman of Fuerst Ittleman David & Joseph said.

“If I’m the title company, I’m taking a really serious look at how much of my business this all-cash transaction is,” he said. “If I really want to keep it, I have to make a decision as to whether I’m willing to take on the enhanced risk of a transaction that is subject to a high level of government scrutiny.”

Ittleman represents clients who are targets of money laundering investigations and advises financial institutions and other businesses on anti-money laundering compliance. He noted the geographic targeting order, or GTO, is the third in the past year that FinCEN placed on Miami, likely due to its reputation as the “Silicon Valley of fraud.”

Last summer, FinCEN ordered check-cashers to look more closely at tax refund checks, and before that another order was issued for Miami businesses that export computer parts to Latin America.

What Took So Long?

Regardless of how FinCEN’s geographic targeting order is enforced, national media coverage has already put doubts in the minds of would-be cash buyers who value their privacy, Ittleman said.

“It’s as high-profile as it gets,” he said. “Even without any enforcement of the GTO, the GTO has an impact. The GTO has a chilling effect on these transactions. That’s already happened.”

But Marcos Jimenez, a McDermott Will & Emery partner and former Miami U.S. attorney, said proper enforcement will count for a lot when it comes to making a dent in money laundering.

Jimenez said enforcement would probably be similar to the process retailers use to report cash sales above $10,000 and banks’ currency transaction reports for large deposits and withdrawals.

Title insurance companies will be required to submit a form identifying the beneficial owner, and the preparer could face a federal felony charge for a violation.

Jimenez said the big question about FinCEN’s order was, “What’s taken them so long?”

“I know that people in the banking and financial world have been wondering about this for probably decades, at least 20 years,” he said. “It’s something that I think U.S. business has looked the other way about for a long time because the more money that comes in here, obviously the better it is for our economy.”

Former federal prosecutor Theresa Van Vliet agreed, saying shell companies concealing beneficial owners have been an obstacle to law enforcement investigations for years.

“Folks who have proceeds of crimes to hide have been using front people or shell companies, whether they’re in the U.S. or offshore companies, since the dawn of time,” said the Genovese Joblove & Battista attorney, who focuses her Fort Lauderdale practice on white-collar litigation and civil and compliance matters.

The focus on title insurers is a “no-brainer,” she said, and setting the threshold at $1 million will help weed out clean-money transactions. But it’s important to remember the reporting requirements are just a first step in a potential investigation.

“Just because someone pays all cash doesn’t mean they’ve done something wrong,” Van Vliet said.

To view original article, click here.

By Francisco Alvarado
January 14, 2016

For federal law enforcement officials, Martin Lustgarten Acherman was a prize catch in the war on drugs. Since 2007, investigators had been keeping tabs on the Miami-based businessman who maintains dual citizenship in Austria and Venezuela, methodically gathering evidence that Lustgarten was laundering tens of millions of dollars for Colombian and Mexican drug traffickers, as well as paramilitary groups, according to court documents obtained by VICE.

On April 8, 2015, authorities arrested Lustgarten in Miami after a grand jury indictment charged him with conspiracy to commit money laundering, obstruction of an official proceeding, and conspiracy to obstruct an official proceeding. His bust generated headlines heralding the dirty drug money nexus between Miami and Venezuela.

But nine months later, the case against Lustgarten suddenly unraveled as prosecutors dismissed the charges against him in what money laundering experts and former drug warriors say represents a stunning blow against the US government’s efforts to punish those who profit from the narcotics trade.

“It is very unusual for a case like this to get dismissed,” Michael Levine, a New York-based trial consultant who worked for a quarter-century as a Drug Enforcement Administration (DEA) special agent, told VICE. “It suggests to me that something was unearthed by the prosecutors that they decided to stop and not go any further with it.”

“It is a steep fall for the government to dismiss a case like this one so abruptly and so quickly,”added Charles A. Intriago, a former Miami federal prosecutor who founded the Association of Certified Anti-Money Laundering Specialists.

Calls to the lead federal prosecutor, Joseph Palazzo, were referred to a US Department of Justice spokesman in Washington DC, who did not respond to VICE’s requests for comment. A spokesman for the DEA’s New England division, which handled the criminal investigation, likewise did not return phone calls seeking comment.

Of course, E. Peter Mullane, the lead attorney for Lustgarten, says the case was dropped for a simple reason: his client is innocent. “From day one we had vigorously protested the fact that this person had been indicted for alleged offenses that he did not commit,” Mullane said in an interview. “It took approximately nine months of extensive discovery and aggressive pleadings to make this point.”

According to the feds’ indictment, Lustgarten operated companies in Hong Kong, Singapore, and Panama that provided capital loans and purchase-order financing to Venezuelan firms involved in the international trade. In Venezuela, companies like Lustgarten’s allegedly took advantage of that country’s strict controls regarding the availability of US dollars by exchanging American currency in the black market for Venezuelan bolivars at a higher rate than normal. By striking deals with Lusgarten’s companies, Venezuelan importers would have access to American cash in order to pay for consumer goods coming from outside the country.

Prosecutors argued Lustgarten was obtaining the US dollars from drug traffickers and paramilitary groups. The indictment details how the DEA Boston office seized accounts in March 2009 tied to Lustgarten’s firms at a Bank of America branch in Doral, a city largely populated by Venezuelans in Miami-Dade County. Yet Lustgarten continued to launder drug proceeds through banks in Hong Kong, Singapore, and Switzerland, according to the feds. During an April 13 detention hearing in Miami, Palazzo accused the Venezuelan-Austrian businessman of laundering between $40 million and $100 million.

“The government’s case is also very strong,” Palazzo said at the time, according to a transcript of the hearing. “Mr. Lustgarten’s arrest was the culmination of several years of investigation by a joint task force in the District of Massachusetts… Extensive wiretaps were conducted in the US and in Colombia and several search warrants were executed on Mr. Lustgarten’s emails. So there is plenty of documentary evidence supporting the charges as well.”

Palazzo also accused Lustgarten of being an unreliable confidential informant who routinely passed false information to the Boston task force investigators. “Mr. Lustgarten is basically a professional liar that has been lying to the DEA and Homeland Security and to the US Attorney’s Office in Boston for several years,” Palazzo told magistrate Judge Edwin G. Torres.

The indictment went on to name a man named Salomon Bendayan, whom Palazzo alleged controlled shell companies that worked in concert with Lustgarten’s supposedly shady businesses. Bendayan was arrested one month after Lustgarten.

While Lustgarten was held without bail for nine months, his defense team went to work taking apart the prosecution’s case against their client. On November 19, Lustgarten’s other lawyer Nathan P. Diamond filed a motion against Palazzo’s request to delay the trial date until February, accusing the prosecutor of stall tactics and failing to produce evidence against his client. In essence, Diamond argued Lustgarten was being denied his right to a speedy trial, pointing out that the prosecutorial team had not provided documents detailing their client’s banking transactions in seven countries.

That’s because prosecutors never obtained the documents, according to Diamond. In order for prosecutors to obtain evidence in other countries, they must first obtain permission from foreign governments to do so under what is known as a mutual legal assistance treaty agreement.

That process appears to have helped derail the feds.

In Lustgarten’s case, a request to gather evidence in Colombia was sent to that country’s government in February, but US prosecutors did not receive a response until August, five months after he had been arrested, according to Diamond’s motion, which cites a DOJ memo he apparently obtained. Prosecutors sent requests to Hong Kong officials in February, July and September, but said they did not get a reply at all, the motion states, and a request to Switzerland’s government was made in July, three months after Lustgarten’s arrest.

On November 20, Miami federal judge Marcia G. Cooke denied Palazzo’s request to delay the trial, according to Lustgarten’s court docket. About a month later, it seems like Palazzo gave up. On December 14, the US Attorney’s Office dismissed the more serious charges when Lustgarten agreed to plead guilty to a misdemeanor charge of illegally entering the US on October 12, 2011, according to court documents obtained by VICE.

Bendayan, the other man charged in the indictment, also had money laundering charges dismissed against him when he pleaded guilty to a felony count of operating an unlicensed money transmitting business.

Andrew Ittleman, a partner in the Miami law firm at Fuerst Ittleman David & Joseph who specializes in money laundering cases, said Lustgarten’s ordeal shows how difficult it is for the US government to prosecute international money laundering crime cases.

“It places a high burden on the government,” Ittleman told me. “His defense attorneys did a masterful job of holding the government to its burden of not only proving beyond a reasonable doubt, but that government would also have to do it quickly.”

The turning point in Lustgarten’s case was the prosecutor’s inability to secure cooperation from foreign countries, according to Ittleman.

“An assistant US attorney can’t just make a phone call to another country to get permission,” Ittleman said. “You need to abide by certain rules. In this case, the US government was not getting the cooperation it needed from Hong Kong, Argentina, Colombia, etc.”

Gregory D. Lee, a retired supervisory DEA agent who also provides expert witness testimony, said he was surprised investigators and prosecutors did not attempt to retrieve Lustgarten’s foreign banking documents prior to the indictment.

“Once you have somebody in custody, the clock starts ticking to go to trial,” Lee explained. “You have to anticipate these type of problems so you avoid them. When you don’t have the documents to turn over to the defense, it turns into a house of cards and it all comes tumbling down. Apparently that is what happened here.”

To view original article, click here.

By Sindhu Sundar
November 24, 2015

Law360, New York — Chicago’s latest complaint accusing major pharmaceutical companies of downplaying the risks of long-term use of opioid painkillers has a stronger chance of surviving the pleading stage, as attorneys say new details focusing on doctors the drugmakers allegedly worked with to promote the drugs will likely persuade a court to allow the city to press its case.

The city filed a more than 300-page second amended complaint this month to include more detailed allegations about schemes by the individual drugmakers, which includeJohnson & Johnson, Purdue Pharma Inc., Actavis PLC and Endo Health Solutions Inc. Chicago’s original suit had broadly described campaign efforts since the 1990s in which the drugmakers spent “hundreds of millions of dollars” to create a veneer of scientific discourse appearing to support the long-term use of opioids, which have drawn controversy amid regulatory scrutiny of prescription drug abuse and overdoses.

U.S. District Judge Jorge Alonso had slashed the city’s suit in May, finding that although the U.S. Food and Drug Administration‘s oversight of the drugs doesn’t interfere with the court’s ability to determine whether they were deceptively marketed, the city hadn’t pled enough details. Specifically, the court found that the city had not identified any “Chicago doctor or consumer” to whom each defendant made misrepresentation.

More than a third of the city’s amended complaint is devoted to allegations about the conduct of individual defendants, and it attempts to highlight the doctors that the drugmakers allegedly paid to give speeches about the opioids that downplayed the risks of long-term use. The complaint also details findings from interviews with doctors in Chicago who claimed the drugmakers’ sales representatives “routinely omitted any discussion about addiction and overdose death and frequently overstated the benefits of opioids.”

The defendants have already fought back, saying in a filing Friday that the suit still lacks specifics, but attorneys think the amended suit has enough material to live to see another day. The court may be inclined to allow the case to proceed to discovery in order to give the city a chance to bolster its claims rather than cull the suit at this point, they say.

“More often than not, when it seems like it could be a close call, the judge will allow the case to move forward into discovery proceedings,” said Andrew Ittleman of Fuerst Ittleman David & Joseph. “It might not be a perfect way of resolving these issues, but more often than not, especially when your plaintiff is Chicago and the court is the Northern District of Illinois, the district court judge is likely going to allow the city its day in court.”

The city has generally accused the drugmakers of engaging in tactics including funding “seemingly neutral and credible” groups to devise treatment guidelines sent to doctors to encourage them to prescribe the drug for chronic pain.

In its amended complaint, Chicago has attempted to include more detail, claiming, for instance, that sales representatives for J&J unit Janssen Pharmaceuticals Inc. falsely told doctors in the city that its opioid Nucynta was not being abused. It also included details about meals certain doctors in the city had on Janssen’s dime, and the dates of those meetings.

Plaintiffs attorneys in particular believe that such details can help Chicago overcome the strict pleading standards for such injury claims.

“The pleading standards are fairly stringent, so whether you’re a city or a private individual you need to plead with specificity,” said Bill Curtis of the plaintiffs firm Curtis Law Group.

“And I think Chicago’s complaint, which has more than a hundred pages’ worth of factual allegations about marketing materials, and studies, and dates of meetings, is very specific,” he said. “It isn’t just saying all opioid drugmakers did all these bad things; the city broke it into sections for each company, and it was very precise. I’d be very surprised if the judge said this wasn’t enough.”

Once past the initial stages, Chicago would also have the challenge of clearly demonstrating the damages it has suffered, attorneys say. Although its claims are similar to federal government False Claims Act suits over drug marketing, the suit is still relatively unusual, because it has been brought by a city, attorneys say.

While the government directly pays for drug reimbursements through federal health insurance programs such as Medicare and Medicaid, cities often administer such health care programs differently, attorneys say. The city claims it offers coverage for prescription drugs to employees and retirees under health plans that it self-insures.

“It’ll come to an issue of whether Chicago shows that it suffered direct harm,” said Nicholas Harbist of Blank Rome LLP. “I think Chicago’s legal theory is a little more nuanced and novel than the traditional theory that the federal government FCA suits have.”

Janssen Pharmaceuticals Inc. and Johnson & Johnson are represented by Charles C. Lifland and Carolyn J. Kubota of O’Melveny & Myers LLP and Michael P. Doss and Scott D. Stein of Sidley Austin LLP.

Purdue is represented by R. Ryan Stoll and Patrick J. Fitzgerald of Skadden Arps Slate Meagher & Flom LLP.

Teva Pharmaceuticals USA Inc. is represented by Tinos Diamantatos of Morgan Lewis & Bockius LLP.

Endo Health Solutions is represented by Peter V. Baugher and Kristen E. Hudson ofSchopf & Weiss LLP.

Actavis PLC is represented by Nicholas M. Marietti of K&L Gates LLP.

The case is City of Chicago v. Purdue Pharma LP et al., case number 1:14-cv-04361, in the U.S. District Court for the Northern District of Illinois.

To view original article, click here.