Sue Reisinger, Corporate Counsel
Maybe CEOs should listen to their general counsel more often. The most recent example is Howard Dorfman, ex-GC at Turing Pharmaceuticals, who warned his boss not to jack up drug prices for fear of business and reputation consequences.
And indeed there were. Last week the Senate Special Committee on Aging heard Dorfman testify about how is boss, then-CEO Martin Shkreli, ignored his warning of “a severely negative impact.” Overnight in August 2015, Shkreli raised the price of a drug used to treat a parasite infection—especially in cancer and HIV patients—from $13.50 a pill to $750 a pill.
Patients and their doctors were outraged. Congress and political candidates started calling for an investigation of drug pricing. Stock prices plunged in the entire biotech industry. But with hardly a chance to say “I told you so,” Dorfman was fired.
In December Shkreli resigned from Turing, a Swiss-based firm with offices in New York, after he was charged with securities fraud in an unrelated matter at another company.
In a separate “I won’t listen” moment, the former president of Commerce Planet Inc., an online marketing company in Los Angeles, may be forced to pay up to $18 million dollars out of his own pocket. The exec allegedly ignored his in-house counsel’s warning that his company might be violating Federal Trade Commission rules.
The U.S. Ninth Circuit Court of Appeals ruled on March 3 that Charles Gugliuzza, the ex-president, was personally liable for violations involving semi- hidden fees of up to $60 that were charged to thousands of people who signed up for a “free auction starter kit.” The ruling upheld the trial court’s finding, although the case was remanded for further consideration on how many millions Gugliuzza must pay.
One of the most damning parts of this case was revealed in an FTC brief to the court. It seems when in-house counsel Paul Huff questioned the legality of the sign-up pages, Gugliuzza “put his hands over his ears” and refused to discuss it. Gugliuzza, also a lawyer, had been the company’s in-house lawyer before becoming president.
This refusal to listen came to light after Gugliuzza attempted to claim that he had acted on advice of counsel.
And the moral of the story?
“Cautionary tales about a company’s failure to heed the warnings of its counsel are not rare,” according to a blog post by Karin Lederer and Eric Unis, lawyers at Troutman Sanders. “Gugliuzza’s story is a reminder that such failures can be costly to individual executives as well, in his case, to the tune of millions.”
