The fraud investigations of Bristol-Myers Squibb and the University of Medicine and Dentistry of New Jersey posed a dilemma for U.S. Attorney Christopher Christie: how to enforce the law without putting them out of business.

In both cases, Christie chose deferred prosecution, placing charges on hold while a defendant meets certain demands. Typical provisions include cooperation, waiver of attorney-client privilege and appointment of monitors. If the defendant complies, charges are dropped.

The practice has been used in drug cases since the 1970s, but more recently it has been expanded to white-collar crimes, mostly those involving health care, financial and accounting companies. Between 2002 and 2005, prosecutors across the country used it in 23 such cases, up from 11 between 1992 and 2001, according to Corporate Crime Reporter, of Washington, D.C.

Because it's relatively new terrain in white-collar cases, there are few signposts, and some legal authorities say prosecutors could use some direction in how to devise monitoring arrangements that are strict but not unduly intrusive.

"It's a brave new world," says Wayne State University Law professor Peter Henning. "There aren't any guidelines on ... how much government involvement is appropriate. Because companies need to avoid indictment, they're desperate."

The deferred prosecution agreement "has to remain narrow and address the underlying business misconduct and not try to reform an entire business organization," says Henning. "These agreements can't change a corporation's culture. ... The U.S. Attorney can't run the business for them."

Stetson University Law professor Ellen Podgor, who co-authors a white-collar crime blog with Henning, says such agreements should be subject to judicial approval. "We have a judiciary for a reason," she says.

ENDOWING SETON HALL

Perhaps that's why Christie's two deferred prosecutions came under fire at an American Bar Association symposium on white-collar crime for what was called excessive prosecutorial involvement in business operations.

In Bristol-Myers Squibb's case, the company agreed on June 15, 2005, to pay $300 million in restitution over a securities fraud charge that it failed to disclose financial incentives used to get wholesalers to buy and hold greater quantities of drugs than market demand warranted. The result was almost $2 billion in excess wholesale inventory, the government said.

The company has paid $839 million to shareholders and has agreed to adopt corporate governance controls and cooperate with the criminal investigation.

Criticisms of the deferred prosecution target two provisions. One required the company to endow a business ethics chair at Seton Hall University School of Law, Christie's alma mater. The other required the company's chief executive, chairman and general counsel to meet quarterly with Christie and the monitor, former U.S. District Judge Frederick Lacey.

Christie says he weighed the consequences of a criminal conviction before deciding on deferred prosecution. "We balanced the need for punishment with an acknowledgment that this company provides great value and that its work should continue," he says. "At the same time, the victimized shareholders have been compensated and we are prosecuting the individuals responsible for the fraud."

At the ABA Criminal Justice Section's National Institute on White Collar Crime in San Francisco on March 2, a panelist called the ethics-chair provision "mind-boggling."

"It looks like BMS is pandering to him and he's letting them," says the lawyer, a former prosecutor who is now a corporate counsel.

"A U.S. Attorney has to hold himself to the same standard that judges use. Can you imagine if a rich criminal defendant endowed a chair at the sentencing judge's law school and then got a lighter sentence?"

Christie did not attend the ABA event. But at the March 23 annual meeting of the Association of the Federal Bar of New Jersey, he defended the ethics-chair provision, saying it was Bristol-Myers Squibb's idea. He says he discussed the matter at the New Jersey conference because a number of people raised it with him after the ABA meeting.

Christie says he suggested the company endow a chair at Rutgers but the school already had one. As for why he set up quarterly meetings with the company's CEO and top lawyer, Christie concedes it's an unusual oversight mechanism. But, he adds, "We're hoping it keeps them reform-minded."

Law professor Henning says it's not unheard of for a company to endow a chair. Five years ago, DuPont did it in a settlement in Georgia, agreeing to give money for endowed ethics chairs at the state's four law schools. But, he notes, that decision was approved by a court.

Bristol-Myers Squibb's lawyer, Mary Jo White, a partner with Debevoise & Plimpton in New York, declines comment.

MONITOR WITH SWEEPING POWERS

Christie says deferred prosecution made sense in the UMDNJ case because the state-owned institution would have been ruined by a conviction.

Under a Dec. 29 agreement, UMDNJ consented to financial, management and personnel reforms and to reimburse state and federal governments for double-billing Medicaid. UMDNJ also agreed to waive any claims of attorney-client privilege or attorney work-product doctrine. Charges will be dropped if the provisions are met within 24 to 36 months.

Christie named Herbert Stern, a former U.S. Attorney and federal judge in New Jersey, as monitor at $500 an hour, with wide discretion and powers to ensure compliance. Stern, who will issue his first quarterly report this month, has powers that include making recommendations on the hiring or firing of senior managers.

At a March 3 breakout session on health care fraud at the ABA symposium, two panelists sounded alarm at the breadth of that responsibility, calling Stern's role unprecedented and Christie's action an arrogation of authority. They charged that a federal official was essentially running a taxpayer-funded state teaching hospital, which constitutes overreaching.

They also criticized the provisions for abrogation of claims of attorney-client privilege and work-product doctrine, Christie's role as arbiter of disputes between Stern and UMDNJ's board and Christie's sole discretion to decide whether to extend the two-year term.

In the audience at the ABA session was Walter Timpone, a former federal prosecutor hired by the UMDNJ board as special counsel. He says some of the participants mischaracterized the UMDNJ agreement. "The thing that bothered me the most was their pontificating on the absurdity of BMS endowing a chair to the law school that the U.S. Attorney went to, and on how the UMDNJ monitor is running the whole taxpayer-funded show," says Timpone, a partner at McElroy, Deutsch, Mulvaney & Carpenter in Morristown. "The monitor is not running the university. ... He deliberately absented from anything that has to do with academia."

Timpone says he told the ABA panelists that he agreed to the provisions in Stern's mandate and to Christie being the final arbiter in disputes because it would be more efficient. "We could have filed a complaint with the court to make a determination in disputes," he says. "It's not an unreasonable argument. But it's easier and quicker to have Christie decide. ... He breaks the tie."

Christie says his distrust of the UMDNJ board motivated him to give Stern a broad mandate. "The board didn't oversee the school very well," says Christie. "I wanted to make sure the board couldn't block real reform."