The Star-Ledger
Tuesday 20 November 2007
Ashcroft firm to monitor med-implant settlement.
When U.S. Attorney Christopher Christie announced a $311 million settlement to end a probe into kickbacks by leading manufacturers of knee and hip replacements, he touted the agreement as a groundbreaking development for consumers and the industry.
The deal also proved to be lucrative for Christie's old boss.
Former U.S. Attorney General John Ashcroft was one of five private attorneys whom Christie hand-picked to monitor the implant makers. Now Ashcroft's D.C.-based firm is poised to collect more than $52 million in 18 months, among the biggest payouts reported for a federal monitor.
Disclosed in SEC filings, the arrangement calls for Zimmer Holdings of Indiana to pay Ashcroft Group Consulting Services an average monthly fee between $1.5 million and $2.9 million. The figure includes a flat payment of $750,000 to the firm's "senior leadership group," individual legal and consulting services billed at up to $895 an hour, and as much as $250,000 a month for expenses including private airfare, lodging and meals.
A spokesman for Ashcroft said yesterday the former attorney general was "uniquely qualified" for the role as monitor and more than 30 professionals at his firm were working on the matter. The spokesman, Mark Corallo, called the fee structure "consistent with any other large-scale monitoring circumstances," but could not immediately point to similar cases.
Christie said he was not involved in setting Ashcroft's fee, but that no one had objected to the compensation. He said prosecutors did not impose fines on Zimmer and the other implant makers because they knew the companies would be paying substantial monitoring fees.
"These companies visited this upon themselves with their criminal conduct," Christie said. "Given what these companies were costing the American taxpayers, the fees that these monitors charge for changing the industry's practices will be a real bargain at the end of the day."
Prosecutors have appointed dozens of corporate monitors in recent years, but their compensation agreements are almost always secret. Former SEC Chairman Richard Breeden, a monitor in several high-profile cases, reportedly billed Worldcom $300,000 a month to oversee the aftermath of what was then one of the largest corporate accounting scandals.
Zimmer spokesman Brad Bishop said the company decided to disclose Ashcroft's contract because "it was our judgment that it was a large amount outside of our normal course of business." Bishop added, "We've allowed that it could be greater than we anticipate."
Spokespersons for the other four companies - Stryker Corp., Biomet Inc., Smith and Nephew PLC, and Depuy Inc., a Johnson & Johnson subsidiary - declined to discuss their contracts. Christie said he would not release copies of the agreements because they involved "private" contracts.
Christie said Ashcroft was the best choice to monitor Zimmer because the former attorney general had run a 120,000-employee department and "understands organization structure and how to get things done" in a corporate setting.
"I certainly don't think it's a problem to hire somebody who used to be your boss but no longer is," said Christie. "What am I getting out of this exactly? I can tell you, I'm getting nothing, except the comfort in hiring people I know I can trust to do the job."
Ashcroft, a former U.S. senator from Missouri, took the reins of the Justice Department in 2001, the same year President Bush nominated Christie to be the top federal law enforcement officer in New Jersey. Three years later, the attorney general tapped Christie to be one of 17 U.S. attorneys on an advisory panel he regularly consulted.
Ashcroft resigned in 2005. It's not clear if his successor, Alberto Gonzales, held the same esteem for his underling in New Jersey. Documents released this year showed that Gonzales' aides had considered replacing Christie last year, but decided not to fire him.
Based in part on his office's success in corruption prosecutions, the 45-year-old former securities attorney and GOP fundraiser has emerged as the party's favorite in the 2009 race for governor. He has not disclosed his plans.
For decades, federal prosecutors used monitors as watchdogs for labor unions and other havens of organized crime. In recent years, the Justice Department has encouraged the practice in corporate investigations, particularly after the collapses of business giants like Enron. Such concessions enable companies to stave off a potentially crippling criminal trial, while letting regulators trumpet their efforts to protect consumers and investors.
Experts say companies rarely are in a position to choose their monitors or haggle over their costs.
"The federal government is coming in saying, 'You shall hire this monitor,'" said Jim Cotterman, a principal with Altman Weil, a legal consulting firm in Pennsylvania. "You are not going to negotiate much on fees or get a competitive bid."
The $311 million settlement, announced in September, ended a two-year federal probe into allegations that the firms paid surgeons millions of dollars to use and promote their knee and hip replacements, a violation of Medicare fraud statutes.
Four of the companies signed agreements in which they admitted no wrongdoing but agreed to pay the government between $26 million and $169 million. Zimmer paid the heftiest settlement - more than double any other company. A fifth defendant, Stryker Corp., avoided paying any settlement.
All the companies agreed to hire a monitor to ensure they comply with the law and a set of reforms imposed by the prosecutors.
Besides Ashcroft, the other monitors tapped by Christie are David Kelley, former U.S. attorney in Manhattan; Debra Yang, former U.S. attorney in Los Angeles; David Samson, former New Jersey attorney general, and John Carley, a former attorney for the Federal Trade Commission and later Cendant Corp.
"I picked these five people because I have worked with them and I trust them and I know that they will approach their job in a responsible way both in terms of the fees they charge and the effort that they put in," Christie said when he announced the settlements.
Each negotiated his or her compensation, although Ashcroft's company is the only one to charge both a flat fee and bill hourly rates, Christie said.
Yang, Kelley and Samson did not return calls and e-mails seeking comment. Carley could not be reached.
Christie said Ashcroft already traveled to Indiana three times for interviews at Zimmer, and that he plans to travel there a few times a month.
Ashcroft launched his Washington-based lobbying and consulting firm in 2005. He also serves as a visiting law professor at Regent University, serves on various boards, and is writing a memoir.
His spokesman, Corallo, declined to detail Ashcroft's specific duties as Zimmer's monitor but said he is playing an active role. He said the firm also includes several former Justice Department lawyers and executives with experience at the top rung of the business ladder.
"This team combines the talents and experience of professionals with a business perspective including the importance of continuity of operations, corporate governance, law enforcement and best management practices," he said.
Pallone Questions Hiring of Ashcroft's Firm
By Jim Snyder
The Hill
Friday 23 November 2007
In response to reports that former U.S. Attorney General John Ashcroft's law firm could earn as much as $52 million watching over one company, a Democratic congressman said he is willing to write legislation that would limit the ability of U.S. attorneys to hire outside monitors of companies or individuals accused of wrongdoing.
In a letter to U.S. Attorney Christopher Christie, Rep. Frank Pallone (D-NJ) said he was "troubled" by reports detailing "significant fees" to Ashcroft Group Consulting as part of a settlement agreement with a company, Zimmer Holdings of Indiana, that makes hip and knee replacements.
Christie chose four additional law firms to monitor other companies that make replacements as well. The manufacturers were accused of paying surgeons to use their products. After paying a fine and allowing outside monitors to review their business practices, the companies avoided further legal trouble in what are known as "deferred prosecution" cases.
In his letter, Pallone questioned the growing use of deferred prosecution agreements as a way to settle cases, saying a company or an individual accused of criminal activity simply should be prosecuted.
"In addition, the seemingly unfettered discretion that your office enjoys to frame the agreement and its terms, including charging a firm or individual to monitor the agreement, invites the very sort of favoritism, political interference, and backroom dealing that your office has been so successful in confronting throughout New Jersey," Pallone wrote.
The Newark Star-Ledger was the first to report the payment to Ashcroft. In a subsequent Associated Press article, Christie said all the people he tapped to help monitor the companies were people whom he had worked with and had experience running large legal operations.
"Given the significant potential for this discretion to be abused it would seem prudent to vest this authority with a disinterested third party, such as a judge or other group of individuals, to remove even the appearance of impropriety that is so easily created when such a large amount of money is being directed to a former employer or colleague," Pallone wrote.
He said he was willing to write a bill that would "provide a more transparent and appropriate process" for deferred prosecution agreements and "in particular, the ways with which federal monitors are chosen."
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