Complaint - The US Government vs. Jim Marchese Whistle-Blower Case

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The settlement agreement was submitted to the Court on April 17, 2007, as Exhibit 1 to the Stipulation of
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Dismissal. Relator was a signatory to the settlement agreement, which expressly reserved the, issue of the
percentage, if any, that Relator should receive of any proceeds of the settlement of his claim(s).... Id. at 6.
United States Position Statement
on the Relators Share Issue 1
(CV-06-0168-MJP)
UNITED STATES ATTORNEY
700 STEWART STREET, SUITE 5220
SEATTLE, WASHINGTON 98101-1271
(206) 553-7970
Judge Pechman
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE
UNITED STATES OF AMERICA
ex rel. JAMES MARCHESE,
Plaintiff,
v.
CELL THERAPEUTICS, INC.,
MEDCOMM SOLUTIONS,
ENVISION PHARMA, INC., and
AMERISOURCEBERGEN CORP.,
Defendants.
No. CV-06-0168-MJP

UNITED STATES POSITION
STATEMENT ON THE
RELATORS SHARE ISSUE
INTRODUCTION
On September 5, 2007, this Court ordered the parties to submit position statements in
advance of an evidentiary hearing on the question of relator James Marcheses entitlement to a
share of the proceeds of the settlement agreement dated April 16, 2007, between the United
States, defendant Cell Therapeutics, Inc. (CTI) and Marchese. In compliance with that order,
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the United States requests and hereby moves that this Court exercise its discretion under Section
3730(d)(3) of the False Claims Act to deny Marchese any relators share in this case because
Marchese personally planned and initiated the fraudulent scheme at the core of this case. See
31 U.S.C. 3730(d)(3) (granting court discretion to reduce relators share by such amount as the
court deems appropriate if the relator planned and initiated the violation on which the action
was brought).
Case 2:06-cv-00168-MJP Document 75 Filed 10/01/2007 Page 1 of 20
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Marcheses actions for which he has never shown remorse or accepted responsibility
caused physicians to unwittingly treat thousands of gravely ill patients with a medicine which
had no demonstrated therapeutic value for their diseases and also directly led to the United States
suffering millions of dollars in damages for which it has not been and probably never will be
made whole. Under these extraordinary circumstances, giving Marchese a share of the
settlement proceeds would merely serve to reward Marcheses egregious wrongdoing by
enriching him at the further expense of the United States and more particularly the Medicare
program which will receive the balance of the settlement proceeds.
Facts
The scheme revealed by this case was to drive up purchases of CTIs anti-cancer drug,
Trisenox, by fooling physicians into writing prescriptions for Trisenox for purposes that were
not medically accepted and tricking Medicare into reimbursing those off-label prescriptions so
that the prescription cycle would continue. A detailed explanation of the scheme is set forth in
the United States Complaint in Intervention, filed April 17, 2007, (U.S. Complaint), which the
United States hereby incorporates by reference.
As described in greater detail in the U.S. Complaint, CTI paid a total of $30,000 to the
Association of Community Cancer Centers (ACCC) in order to get the ACCC to publish
Trisenoxs off-label uses in the ACCCs Compendia Based Bulletin (Bulletin) in such a way
as to make it appear that those off-label uses were FDA-approved, medically accepted uses. See
U.S. Complaint at 31-38. CTIs sales force then distributed copies of the Bulletin to
physicians. Id. at 39-58. Based on the false information in the Bulletin, physicians wrote
thousands of off-label Trisenox prescriptions and submitted those prescriptions to Medicare for
reimbursement in the mistaken belief that Trisenoxs off-label uses were medically accepted and
thus eligible for Medicare reimbursement. Id. at 59. To ensure physicians would continue
prescribing Trisenox off-label, CTI needed to convince Medicare to reimburse those off-label
prescriptions. Accordingly, CTI drafted a letter that was sent to the medical directors of the
various Medicare Carriers notifying them that Trisenoxs off-label uses were now listed in the
Bulletin and hence were eligible for Medicare reimbursement. Id. at 60-61. The Medicare
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Carriers accepted these false representations and began routinely reimbursing off-label
prescriptions of Trisenox which were not in fact entitled to Medicare reimbursement because
Trisenox was not a medically accepted treatment for any of the off-label uses for which it was
being prescribed. Id. at 62-65.
The following additional facts are relevant to the relators share dispute:
1. Marchese, who has worked in pharmaceutical sales since 1991, received a Masters
degree from Columbia University in Public Administration (Health Care Public Policy and Law)
and received a Juris Doctor from Seton Hall University in 2001. While still in law school,
Marchese submitted a term paper discussing the FDAs authority to regulate drug
manufacturers off-label marketing activities and concluded that a manufacturer can acquiesce
to [FDAs regulation of off-label marketing], or roll the dice and disseminate off-label non-
compliant data and run the risk of incurring catastrophic legal costs or penalties. See Ex. 1 at
01099 (emphasis added).
2. CTI hired Marchese as an Oncology Account Manager in 2000. In the Fall of 2001,
Marchese arranged to meet with the ACCCs Don Jeweler. Jewelers September 20, 2001, letter
to Marchese memorialized an agreement by which the ACCC would list Trisenoxs off-label
orphan drug designations in its Bulletin in exchange for a $10,000 per year grant. See Ex. 2.
3. On October 15, 2001, Marchese wrote a memorandum to CTIs accounting department
requesting payment of the first $10,000 installment to the ACCC, bluntly stating that, the
ACCC is being offered this support in return for 3,000 copies of the Compendia Bulletin listing
Trisenoxs approval for MM, MDS and CML and an [sic] banner advertisement on their web
page. See Ex. 3 (emphasis added). Ultimately, CTI paid the ACCC $30,000 for both the
listing and for several thousand of copies of the Bulletin.
4. On October 16, 2001, James Bianco, CTIs CEO, wrote the following email to
Marchese:
Jim [Marchese]
I heard from Mark and Peter that you may have worked your magic again with a potential
way to get us listed for our orphan designation in the Compendia well ahead of the end of
2002 target through the more traditional route. If this proves effective this would be a
major accomplishment for your team.
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Nice work Ill keep my fingers crossed.
Jim [Bianco]
See Ex. 4.
5. By October 21, 2001 Marchese wrote a formal Compendia Action Plan, the last point
of which stated, [d]etermine affects [sic] of Orphan Drug Designation listing vs Data
submission acceptance if reimbursement becomes an issue. See Ex. 5 (emphasis added).
Marchese assigned this task to himself. Id.
6. Shortly after CTI paid the ACCC the first $10,000 grant, the ACCC published the
November 2001 issue of the Bulletin, which falsely and misleadingly indicated that certain off-
label uses for Trisenox were medically accepted and FDA-approved. See Ex. 6.
7. Upon receipt of the first batch of copies of the false and misleading Bulletin, Marchese
sent an email on November 26, 2001, to his immediate supervisor at CTI, Peter Sportelli, which
read:
Peter,
How pretty are those Compendia bulletins!!! By the way - in case you did not notice, I
worked another little loop whole [sic]. I figured what the Hell!!! If you notice the ACCC
has us listed for EVERY form of Leukemia not just AML, CML and APL. * * * There is a
ton of stuff in there I have never even heard of. If a state checks, we will only get our
Orphan Drug and USP stuff, but my guess is that about 30-40% of the states will not check.
Hey it cant hurt and man do I like working the system. I figure if 1 state doesnt check its
[sic] a bonus!!
I got a kick out [of] this, I thought you might too. I figured if I told everyone inside they
would raise our goal, so I kept it quiet until it came through. Plus I figured it was a good
reminder that while I might not call you everyday that doesnt mean I am not cooking up
ways to make us VERY, VERY rich!!! I also think coming out with stuff like this keeps
you guessing, hell I cant let you think you have all my tricks down. I have a couple more I
am working on so stay tuned.
Jim [Marchese]
See Ex. 7.
8. In anticipation of distributing the copies of the misleading Bulletin to physicians,
Marchese composed an email for CTIs sales force about how best to use the Bulletin to
encourage physicians to write off-label prescriptions. See Ex. 8. Marchese also personally
distributed copies of the Bulletin to physicians he called upon in his capacity as an Oncology
Account Manager.
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9. Marchese knew that physicians would only write off-label prescriptions for Trisenox if
they believed Trisenox was medically accepted for those uses and if Medicare approved the
reimbursement of those off-label prescriptions. Thus, in November 2001 Marchese drafted the
first of two letters to the medical directors of the various Medicare Carriers. The final letter,
dated November 19, 2001, was sent under the signature of CTIs contractor (Documedics) to
make it appear as if it had been written by an independent third party consultant. The letter
provided:
As a consultant to cancer practices, I would like to take this opportunity to notify you of an
update within the Compendia-Based Drug Bulletin for November 2001, Fall Update Vol.
10 No. 3 published by the ACCC. It details the diseases and therapies listed in the
recognized Compendia (USP DI). I would like to bring your attention to the fact that
TRISENOX (arsenic trioxide) is newly listed in the Compendia for the following
diseases: multiple myeloma, myelodysplastic syndrome, chronic myeloid leukemia, in
addition to the approved indication of acute myelocytic leukemia -M3.
Trisenox (arsenic trioxide) has been granted orphan-drug designation in each of these
diseases, denoted by *** within Compendia-Based Drug Bulletin. ... HCFA and the FDA
are collaborating to ensure that patients treated by orphan designated drugs will be afforded
coverage....
...
As per the Medicare Cancer Coverage Act of 1994, a drug listed in one of the
compendia should be a covered Medicare item. Therefore, we are requesting a
formulary listing in your state/states.
See Ex. 9. Thus Marchese attempted to use the false and misleading Bulletin to convince
Medicare Carriers that they should in fact reimburse Trisenox when physicians prescribed it off-
label.
10. In direct response to receipt of the false letter Marchese drafted which referred to the
false Bulletin Marchese had arranged to get published, Medicare Carriers began to routinely
approve claims for Trisenox when prescribed off-label for MM, MDS and CML. Empire
Medicare Services (the Medicare Carrier for New Jersey and the county of Nassau in New York
State) specifically acknowledged taking the step of approving payment for off-label Trisenox
prescriptions as a result of receiving the November 19, 2001, letter. See Ex. 10. Moreover,
shortly after receipt of the November 2001 letter, Nationwide Insurance (the Medicare Carrier
for Ohio and West Virginia), and Noridian (the Medicare Carrier for Alaska, Arizona, Colorado,
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With respect to the remaining Medicare Carriers who had not yet begun reimbursing Trisenox for off-label
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prescriptions, Marchese wrote a second letter in February 2002, nearly identical to the November 2001 letter,
which had the effect of convincing Highmark Medicare Services, Inc. (the Medicare carrier for Pennsylvania), to
routinely approve claims for Trisenox when prescribed off-label for MM, MDS and CML.
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Hawaii, Iowa, Nevada, North Dakota, Oregon, South Dakota, Washington and Wyoming) both
began routinely approving payment for off-label Trisenox prescriptions.
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11. In a 2002 memorandum to his superiors complaining about his failure to receive a
promotion, Marchese wrote the following entry concerning his role in the companys compendia
strategy:
Created and implemented a 100% successful compendia submission for MDS, MM, AML,
CML. ... NOTE: To date the company still fails to meet ANY of the criteria set forth in
compendia acceptance [sic] for all of the aforementioned disease states. Without my
ability to troubleshoot and find a [sic] alternate route we would not have compendia
in any off-label disease for a minimum of 1-3 additional year[s]!!!
See Ex. 11 (bold and underlining in original).
12. CTI fired Marchese on September 27, 2002, for causing the company to write checks
that Marchese had misrepresented as being for educational programming but which CTI
determined were illegal discounts to purchasers of its pharmaceuticals, i.e. illegal kickbacks.
Shortly thereafter, Marchese hired an attorney who threatened to file suit for wrongful
termination on the purported grounds that Marchese had been fired for expressing concerns over,
potential health risks from C.T.I.s aggressive promotion of its drug Trisenox for indications
that are not approved by the F.D.A. See Ex. 12.
13. On December 13, 2002, Marcheses attorney made a telephone call to a fraud
hotline maintained by the Department of Health and Human Services Office of Inspector
General (HHS-OIG). Marcheses attorney suggested that Trisenox had adverse side effects
when prescribed off-label and also disclosed in general terms that CTI had engaged in off-label
marketing of Trisenox and that CTI had paid illegal kickbacks to physicians. See Ex. 13. But
Marcheses attorney did not mention anything about the ACCC, the Bulletin, or the letter which
Marchese had drafted for the Medicare Carriers. Id. Also, neither Marchese nor his attorneys
contacted the United States Attorneys Office or other components of the Department of Justice
at this time.
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14. On May 20, 2003, Marcheses attorney wrote to CTI threatening inter alia to file suit
under the False Claims Act and inviting CTI to discuss the matter. See Ex. 14.
15. On December 31, 2003, CTI filed an action in this Court against Marchese and
Sportelli. See Cell Therapeutics, Inc. v Peter Sportelli and James L. Marchese, C03-03987-MJP
(W.D. Washington). Also on December 31, 2003, apparently in response to the filing of the
complaint against Marchese, Marcheses attorney drafted a letter to Dr. Joseph Grillo, a
Regulatory Review Officer at the FDAs Division of Drug Marketing, Advertising and
Communications. This letter repeated the substance of the HHS-OIG hotline call which
Marcheses attorney had made on December 13, 2002, but again failed to mention the ACCC,
the Bulletin, or the letter Marchese had drafted for the Medicare Carriers. See Ex. 15.
16. At or about the time CTI filed its suit against Marchese and Sportelli, CTI also
referred the embezzlement allegations against Sportelli to the Seattle Field Office of the FBI,
which opened an investigation. The FBI interviewed Marchese in connection with the
embezzlement allegations against Sportelli on January 27, 2004. During his interview, Marchese
repeated the substance of the allegations which were described in the hotline complaint of
December 13, 2002, and the letter to Dr. Grillo of December 31, 2003, again failing to mention
the ACCC, the Bulletin or the letter he had drafted for the Medicare Carriers.
17. By Spring 2004, Marcheses interview with the FBI had been made available to both
the civil and criminal Health Care Fraud coordinators at the United States Attorneys Office for
the Western District of Washington. Marchese was voluntarily interviewed by the United States
Attorneys Office on June 14, 2004. Marchese repeated the allegations previously made to the
HHS-OIG hotline and in the letter to Dr. Grillo but again failed to mention the ACCC, the
Bulletin or the letter he drafted the Medicare Carriers. Critically, Marchese failed to explain that
Trisenox was not in reality eligible for off-label reimbursement by Medicare and omitted his
central role in convincing Medicare Carriers that they should reimburse Trisenoxs off-label
uses.
18. Because Marchese had not explained his role in getting the Bulletin published or in
convincing Medicare to reimburse Trisenox off-label, the United States Attorneys Office was
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hindered in its attempts to fully investigate the scheme. Ultimately, the United States Attorneys
Office contacted a physician at one of the Medicare Carriers who first identified the fact that
Trisenox was not a medically accepted treatment for any of the off-label indications and
therefore was not reimbursable by Medicare. As a result of the United States Attorneys
Offices continuing investigation, Marchese was informed in the Fall of 2005 that he was a
possible subject of a criminal investigation. At this time, Marchese ceased cooperating with the
United States Attorneys Office. In the Winter of 2006, the Criminal Division of the United
States Attorneys Office declined to prosecute Marchese and CTI, permitting the Civil Division
to pursue the case against CTI as a civil fraud case.
19. Only after he was informed by the United States Attorneys Office in the Winter of
2006 that he would not be criminally prosecuted, and that the United States Attorneys Office
would pursue the case as a civil matter, did Marchese, on February 1, 2006, file his qui tam
complaint. Marchese asserted that he had recommended the off-label campaign to his superiors
for the following reasons:
Relator learned that Trisenox was listed in Volume III of the USPDI [sic] based on
Trisenoxs orphan drug status for certain diseases, including MM and MDS. Relator
believed that Trisenoxs listing Volume III of the USPDI [sic] qualified it for Medicare
reimbursement under 42 U.S.C. 1395x(t)(2)(B)(ii)I). It does not. Listing in Volume III
of the USPDI [sic] is not equivalent to listing in Volume I of the USPDI [sic], and drugs or
usages listed only in Volume III are not reimbursed by Medicare. * * * Relator, an
inexperienced sales representative who had not been employed at CTI for even one year,
suggested (albeit mistakenly) to senior management at CTI that because Trisenox was listed
in Volume III of the USPDI, Medicare may reimburse for Trisenoxs off-label use to treat,
inter alia, MM and MDS.
See Relators Qui Tam Complaint, 132-135 (emphasis in original).
20. There is no mention in the qui tam complaint of the ACCC, the Bulletin, the payment
Marchese arranged to make to the ACCC in exchange for Trisenoxs off-label listings in the
Bulletin, or the letters Marchese authored and which were sent to the medical directors of the
Medicare Carriers in an effort to convince them to reimburse off-label Trisenox prescriptions.
21. The United States filed its Complaint in Intervention on April 17, 2007, and
simultaneously dismissed its action against CTI pursuant to a settlement agreement between the
United States, CTI and Marchese which resolved False Claims Act allegations against CTI
arising from this scheme. The settlement agreement does not resolve the relators share, if any.
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22. The United States learned through an interview of Marcheses former girlfriend that
Marchese had engaged in the spoliation of evidence. According to the former girlfriend,
Marchese took the former girlfriend to a warehouse in New Jersey in April 2004 where he
retrieved three boxes of documents in her presence. Marchese told her that the documents
related to the period of his employment at CTI. Marchese also told her that he was planning on
filing a qui tam lawsuit against CTI but before he could provide the documents to his attorney to
prepare a complaint, he needed to cull out the documents that implicated Marchese. According
to the witness, Marchese carefully went through the three boxes of documents in her presence,
segregating out enough documents to fill up one of the three original boxes. Marchese told the
witness he was giving the two boxes to his attorney and that he was going to destroy the third
box of inculpatory documents.
23. Marcheses former girlfriend also disclosed to the United States that Marchese wrote
two manuscripts concerning his work in the pharmaceutical industry. The first, called the End
of the Innocents, documents Marcheses work in the pharmaceutical industry prior to working
for CTI. The second manuscript, however, entitled, The Heart of the Matter, dealt directly
with Marcheses work at CTI and reportedly provides details on Marcheses successful efforts to
illegally market Trisenox for off-label uses. Marchese has told the former girlfriend, who has
read and helped edit the manuscript, that the manuscript is a true account of his activities;
however, to date Marchese has not produced a copy of that book to the United States
notwithstanding his obligations under 31 U.S.C. 3730(b)(2), which requires a relator to serve
the United States with all the material evidence and information the person possesses at the
time the relator files a qui tam complaint.
Argument
Because the United States elected to intervene in this matter, Section 3730(d)(1) of the
False Claims Act ordinarily would dictate that Marchese be awarded between 15% and 25% of
the settlement amount, depending on the extent to which the person substantially contributed to
the prosecution of the action. See 31 U.S.C. 3731(d)(1). However, in instances where the
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There were multiple claims in the Barajas case each of which gave rise to separate damages. The Barajas
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court analyzed each claim separately and awarded the relator a different share of the settlement proceeds as to
each claim. While this approach is appropriate in many instances, the United States does not take that approach
here. While the U.S. Complaint asserts that CTI engaged in what are arguably three distinct schemes (1) the
off-label marketing scheme, (2) the payment of illegal kickbacks to doctors, and (3) illegally charging for
Trisenox used in clinical studies and then encouraging doctors to seek reimbursement the settlement agreement
between the U.S., CTI and Marchese does not break down the damages from each scheme separately. This is
because the $10.5 million settlement in this case, which was driven by CTIs financial condition and the U.S.s
estimate of CTIs ability to pay a settlement, was less than the governments estimate of the single damages from
the off-label marketing scheme alone. Since the off-label marketing scheme damages exceeded both the U.S.s
estimate of CTIs ability to pay and the settlement figure based thereon, there was no reason to calculate damages
separately for the other two schemes (which would have overlapped to some extent in any event) or to break out
damages for those schemes separately in the settlement agreement. Marchese agreed that the settlement
agreement was fair, adequate and reasonable. Ex. 1 at 6.
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relator planned and initiated the conduct that violated the False Claims Act, the court may
reduce the relators share:
Whether or not the Government proceeds with the action, if the court finds that the action
was brought by a person who planned and initiated the violation of section 3729 upon
which the action was brought, then the court may, to the extent the court considers
appropriate, reduce the share of the proceeds of the action which the person would
otherwise receive under paragraph (1) . . . of this subsection, taking into account the role of
that person in advancing the case to litigation and any relevant circumstances pertaining to
the violation.
31 U.S.C. 3730(d)(3). The court has broad discretion in determining the appropriate reduction
and may reduce a planner and initiators share to zero. United States ex rel. Barajas v. Northrop
Corp., CV 8707288 KN at 27 (C.D. Cal. 1992) appeal on other grounds, 547 F.3d 407 (9 Cir.
th
1993) (copy attached as Ex. 16).
In applying these provisions, the Court should follow a three step process. First, the Court
should determine the share between 15% and 25% to which Marchese would otherwise be
entitled if he were not a planner and initiator. Second, the Court should then determine whether
Marchese was a planner and initiator within the meaning of 31 U.S.C. 3730(d)(3). Third, if
the Court determines Marchese was a planner and initiator, the Court should determine the
degree to which his relator share should be reduced. United States ex rel. Barajas v. Northrop
Corp., supra at 22.
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Although non-exhaustive and non-binding, the Relators Share Guidelines, touch many of the factors that
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common sense and experience commend in assessing a relators contribution, United States ex rel. Alderson v.
Quorum Health Group. Inc., 171 F.Supp.2d 1323, 1333 (M.D. Fla. 2001), and the courts have, to varying degrees,
deemed the Relators Share Guideline relevant to determining a relators share under 31 U.S.C. 3730(d)(1). Id..
See also United States ex rel. Nudelman v. International Rehabilitation Associates, Inc., No. 00-CV-1837 (E.D.
Pa. May 23, 2007); United States ex rel. Pochardt v. Rapid City Regional Hospital, 252 F.Supp.2d 892, 899
(D.S.D. 2003); United States ex rel. Fox v. Northwest Nephrology Associates, P.S., 87 F.Supp.2d 1103, 112
(E.D. Wash. 2000); United States ex rel. Schauble v. Sharp Healthcare Foundation, No. 97CV1462 H (S.D. Cal.
Jan. 21 2000).
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Step One: Determining Marcheses Share if he were not a Planner & Initiator
In 1996, the Department of Justice issued a set of Relators Share Guidelines (copy
attached as Ex. 17). The purpose of these guidelines is to help assess a relators contributions to
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the litigation in order to determine where within the possible 15%-25% range a relator should
fall. Under the Relator Share Guidelines, a presumption exists that a relator is entitled to 15%
of the proceeds absent any other factors. This number may be adjusted upwards (within the
15%-25% range) based on a set of 14 plus factors. If any upward adjustment is warranted, the
Relators Share Guidelines permit a downward adjustment (within 15%-25% range) based on
another set of 11 minus factors. No adjustment below 15% is permissible unless it is based on
a statutory reduction such as Section 3730(d)(3).
An analysis of the Relators Share Guidelines shows that Marcheses award should be set at
no more than 15% even before the Court considers whether he was a planner and initiator.
Beginning with the plus factors, Marchese fails to get credit for reporting the fraud early
(plus guideline no. 1) or for attempting to stop the fraud (plus guideline no. 2) or for causing
the offender to halt the fraudulent practice (plus guideline no. 3). Marchese waited until after
his employment was terminated before causing his attorney to report any fraud to the HHS OIG
hotline in December 2002 by which time the fraud had been in effect for over a year. Even
then Marchese did not disclose the fraud involving the ACCC, the Bulletin and the letters to the
Medicare Carriers, all of which Marchese had instigated. Marchese then waited another three
years before filing his qui tam complaint in February 2006 but still failed to explain his role in
instigating the fraud or how it had been accomplished. Throughout that period CTIs fraud went
unabated until, for reasons unrelated to the as yet unfiled qui tam, CTI sold Trisenox in 2005 to
another company.
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Similarly, Marchese did not warn the government of a significant safety issue (plus
guideline no. 4). While his qui tam complaint does raise questions about the safety of Trisenox
and of CTIs supposed failure to disclose its side-effects, see qui tam complaint at pp. 27-31, the
government did not consider these issues to be meritorious and did not intervene on them.
Marchese likewise did not expose a nationwide practice (plus guideline no. 5) because
Marcheses allegations related to a single drug being marketed by a single company and did not
expose a widespread industry practice that was nationwide in scope.
While it was clearly within his ability to do so, Marchese also failed to provide extensive,
first-hand details of the fraud to the government (plus guideline no.6), Marchese did not make
reference to the ACCC, the Bulletin or the letters he drafted to the Medicare Carriers in his qui
tam complaint. Rather, the United States pieced the fraud together on its own as the result of its
own pain-staking investigation and did so before Marchese filed his qui tam complaint.
Accordingly, Marchese did not provide substantial assistance during the investigation and/or
pretrial phases of the case ( plus guideline no. 8).
The case never went to trial (plus guideline no. 12) and because Marchese was never
deposed, Marchese can not claim credit for being an excellent witness (plus guideline no 9).
In fact his denials of culpability in the qui tam complaint which the government has never found
credible, discussed infra, would have prevented the government from calling him as a witness in
any event. Because there never was any active litigation, it cannot be said that relators counsel
provided substantial assistance to the government (plus guideline no. 10) and in view of
relators failure to meet with the government during the period that he was concerned that he
might be indicted, it also cannot be said that the relator and his counsel supported and
cooperated with the government during the entire proceeding ( plus guideline no. 11). The
$10.5 million dollar settlement is not small (plus guideline no. 13). Moreover, Marcheses life
was not substantially adversely impacted by the case (plus guideline no. 14) since he was
already an ex-employee when he made his initial HHS-OIG hotline complaint.
In fact, the only plus guideline Marchese qualifies for is alerting the government to a
fraud that the government did not know about (plus guideline no. 7). While this is certainly an
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Since one can participate in the fraud without planning and initiating it, this minus factor is distinct from
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the intent of Congress to more greatly penalize those who, as planners and initiators, go beyond merely
participating in a scheme.
The remaining minus factors do not apply to this case. It cannot be said that Marchese had little knowledge
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of the fraud (minus guideline no. 4) or that his knowledge was based primarily on public information (minus
guideline no. 5) or that he learned of the fraud in the course of government employment (minus guideline no.
6) or that the government knew of the fraud (minus guideline no. 7) or that the FCA recovery was particularly
large (minus factor no. 11).
(CV-06-0168-MJP)
(206) 553-7970
important consideration, the fact that it is the only positive guideline applicable to Marchese
suggests that Marcheses contributions place him close to the bottom of the 15%-25% relator
share range, even before considering the minus factors, let alone his conduct as a planner and
initiator.
Turning to the minus guidelines, Marchese plainly participated in the frauds (minus
guideline no. 1) and, as discussed above, also substantially delayed in reporting any fraud or
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filing his qui tam complaint (minus guideline no. 2). In addition, by destroying or failing to
turn over to the government at least some of the evidence that he had a statutory duty to provide
the government when he filed his complaint, see 31 U.S.C. 3730(b)(2), it appears that
Marchese violated both the spirit and letter of False Claims Act procedures (minus guideline
no. 3). By failing to fully and forthrightly explain the fraud, moreover, Marchese hampered the
government's efforts to develop the case (minus guideline no. 8). This led to the government
having to make a substantial independent effort to develop the facts necessary to win, or in this
case settle, the lawsuit (minus guideline no. 9). Lastly, the case was settled immediately after
the governments complaint was filed and without the need for discovery (minus guideline no.
10).
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In sum, Marchese has one plus factor to his credit against which there are five minus
factors against him. On balance, therefore, Marchese overall contributions to the advancement
of the litigation were de minimus. Accordingly, and only if the Court concludes that he is not a
planner and initiator under 31 U.S.C. 3730(d)(3), Marcheses relators share should be set at
15% the very bottom of the 15%-25% range.
Step Two: Determining Whether Marchese Was Planner & Initiator
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Marchese was not merely a planner and initiator for purposes of 31 U.S.C. 3730(d)(3); he
was the planner and initiator of the scheme to deceive physicians into believing Trisenox was a
medically accepted drug for its off-label uses and to deceive Medicare into reimbursing those
off-label prescriptions as a way to continue fueling the off-label prescription scheme he had
started. Before filing the qui tam complaint, Marchese proudly wrote that he personally
[c]reated and implemented a 100% successful compendia submission for MDS, MM, AML,
CML. Ex. 11.
Even in his qui tam complaint, Marchese admits that he suggested to senior management
the idea of marketing Trisenox off-label. In an obvious attempt to avoid being tagged with the
planner and initiator label, however, Marchese claims he did not know any better because he was
an inexperienced sales representative, qui tam complaint at 135, who honestly believed
albeit mistakenly, id., that Trisenox could be reimbursed off-label because its orphan drug
designations appeared in one of the compendia. But Marchese was not the hapless entry level
employee he portrays himself as being in his complaint. Marchese had a Masters in Public
Administration from Columbia University, concentrating in public policy and health care, and a
juris doctor from Seton Hall in health care law. In law school Marchese had closely followed
the leading off-label marketing cases and written a term paper stating that drug companies could
pursue off-label marketing as long as they were willing to risk the unlikely event of an
enforcement action.
Even ignoring Marcheses expertise in off-label marketing law, Marcheses assertion in his
qui tam complaint that he honestly but mistakenly believed that Trisenox was eligible for off-
label reimbursement is at odds with the memorandum he wrote to his superiors. What made his
compendia strategy such a remarkable achievement, according to Marchese, was that he was
able to get Trisenoxs off-label indications published in the compendia notwithstanding the fact
that, to date the company still fails to meet ANY of the criteria set forth in compendia
acceptance [sic] for all of the aforementioned disease states. Ex. 11 (emphasis in original).
In other words, Marchese knew Trisenox should not have been listed in the Bulletin for its off-
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While the evidence overwhelmingly shows that Marchese had actual knowledge that he was perpetrating a
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scheme that would result in the submission and payment of thousands of false claims, no such actual knowledge
is required to make Marchese a planner and initiator. Rather, under the False Claims Act, a party acts with
requisite intent to violate the act if the party, (1) has actual knowledge of the information; (2) acts in deliberate
ignorance of the truth or falsity of the information; or (3) acts in reckless disregard of the truth or falsity of the
information, and no specific intent to defraud is required. See 31 U.S.C. 3729(b). Thus it is significant that in
his Compendia Action Plan, Marchese recognized there was a risk that the claims would not be reimbursed by
Medicare and assigned to himself the responsibility for understanding the, affects [sic] of Orphan Drug
Designation listing vs. Data submission acceptance if reimbursement becomes an issue. See Ex. 5. Of course,
reimbursement never became an issue because the Medicare carriers began paying for Trisenoxs off-label
prescriptions almost immediately. Regardless, by failing to determine the legality of a reimbursement plan which
he recognized had risks, Marchese acted with intent to violate the FCA and become a planner and initiator.
(CV-06-0168-MJP)
(206) 553-7970
label uses but pursued the Bulletin listing strategy anyway and also pursued the strategy of
convincing Medicare to reimburse those off-label uses.
Marcheses claim that he simply made a good-faith mistake is also patently inconsistent
with Marcheses email to Peter Sportelli extolling the newly-arrived Bulletins. In a tone that can
be described as exultant, Marchese takes credit for getting Trisenox into the compendia not only
for its off-label orphan drug designations (which he knew did not meet the criteria for
compendia acceptance) but also for a whole slew of other cancers many of which Marchese
says he has never even heard of before. Marchese, obviously delighted with himself, claims this
is simply another little loop whole [sic] that will soon result in them both getting, VERY,
VERY rich!!! These are not the sentiments of a man making an honest mistake.
7
Step Three: Determining the Reduction to the Relators Share.
Given Marcheses status as a planner and initiator, the Court has the discretion to, the
extent the court considers appropriate, reduce the share of the proceeds of the action which the
person would otherwise receive ... taking into account the role of that person in advancing the
case to litigation and any relevant circumstances pertaining to the violation. 31 U.S.C.
3730(d)(3). As previously noted, the share which Marchese would otherwise receive in this
case is this minimum relators share of 15%. With respect to Marcheses role in advancing the
case to litigation, it should by now be clear that Marchese never fully explained the scheme he
had hatched either to the United States Attorneys Office during the investigatory phase or in the
qui tam he ultimately filed. To the contrary, in an effort to deflect responsibility, Marchese
omitted critical facts such as his solicitation of the ACCC, its subsequent publication of the
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In an effort to end the harm caused by Marchese, the United States: (1) got the company which purchased
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Trisenox from CTI to agree to stop marketing Trisenox for its off-label orphan drug designations and to notify
physicians that had prescribed Trisenox that it was not medically accepted for such uses; (2) caused the ACCC to
(CV-06-0168-MJP)
(206) 553-7970
Bulletin and the letters he wrote to the Medicare Carriers to deceive them into reimbursing
Trisenox. Marchese waited to file his qui tam complaint until after the United States had figured
out his scheme and even then he did not lay the scheme entirely bare choosing instead to
manufacture a patently false explanation for why he recommended pursing the compendia
strategy and what that strategy was. On more than one occasion, defendants pointed out that if
Marchese, the architect of the plan, denied knowing of its inherent illegality, there was no way
for his superiors at CTI to know that the plan was illegal. Thus, Marchese rendered himself
useless to the United States as a potential witness and hindered the United States ability to
pursue the case against CTI factors which the United States weighed in reaching its settlement.
It also now appears that Marchese engaged in the deliberate spoliation of evidence that was
inculpatory to him and which he had a duty to preserve conduct that violated Marcheses
duties under Section 3730(b)(2) of the False Claims Act and which also warrants the outright
dismissal of his claim for a relators share. See Mauricio Leon v. IDX Systems Corporation,
No. C03-1158P (W.D. Wash. Sept. 30, 2004) (Pechman, J.) (exercising courts inherent
authority to dismiss plaintiffs claims as a sanction for the intentional spoliation of evidence)
(copy attached as Ex. 18). Marchese thus did not play a significant role in advancing the case
but, to the contrary, hindered it to a significant degree.
In reducing the relator share, the Court may also consider, any relevant circumstances
pertaining to the violation. 31 U.S.C. 3730(d)(3). Accordingly, the United States requests
that in reducing Marcheses share the Court consider the fact Marcheses scheme resulted in
physicians unwittingly writing thousands of worthless Trisenox prescriptions for seriously ill
patients because physicians reading the Bulletin were under the mistaken impression that
Trisenox was a medically accepted treatment for those illnesses. While it is bad enough that
these patients were given the false hope that they were being treated with a medicine that had
been proven effective in treating their illnesses, what is even worse is that the patients and their
physicians were diverted from prescribing other medications that may have been effective.
8
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cease publishing Trisenoxs off-label orphan drug designations in the Bulletin; and (3) personally contacted many
physicians who had prescribed Trisenox off-label and informed them that the drug was not medically accepted
for those uses.
(CV-06-0168-MJP)
(206) 553-7970
Undoubtably Marchese must have understood this when he saw Trisenox being listed in the
Bulletin for cancers that he admits he had never even heard of; but Marchese, who got a kick
out [of] this, see Ex. 6, has never accepted any responsibility for this misconduct nor shown the
slightest remorse.
Lastly, the financial consequences of Marcheses misconduct are a relevant consideration
here. Due to CTIs financial condition, the United States was forced to settle with CTI for a
figure which was significantly below the governments single damages estimate of $15.8 million
for just the off-label portion of this case. There has been no multiple damages recovery in this
case, as is permitted under the False Claims Act, and thus there is no fund from which the United
States can pay a relators share unless it deducts it from the amount that otherwise would be
remitted from the settlement proceeds to the Medicare Trust Fund. Indeed, because the
settlement with CTI does not compensate the Medicare Trust Fund for all the damages
Marcheses scheme inflicted upon it, awarding Marchese a share of the settlement proceeds will
only serve to reward Marchese for his own misconduct at the further expense of the Medicare
program which stands to receive the balance of any settlement proceeds. Under these
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(206) 553-7970
circumstance, the United States recommends that Marcheses relator share be reduced to the
maximum extent possible, i.e. to zero percent.
Conclusion
WHEREFORE the United States respectfully requests this Court enter an Order
establishing that the relator, James Marchese, is entitled to zero percent of the proceeds of the
settlement agreement between the United States, CTI and Marchese.
DATED this 1st day of October, 2007.
Respectfully submitted,
PETER D. KEISLER
Assistant Attorney General
JEFFREY C. SULLIVAN
United States Attorney
s/ Peter Winn
PETER A. WINN
Assistant United States Attorney
JOYCE R. BRANDA
DANIEL R. ANDERSON
ALAN S. GALE
Attorneys, Civil Division
United States Department of Justice
P.O. Box 261
Ben Franklin Station
Washington, DC 20044
Tel: (202) 307-6296
Fax: (202) 616-3085
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(CV-06-0168-MJP)
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this date I electronically filed the foregoing United States
Position Statement on the Relators Share Issue with the Clerk of the Court using the CM/ECF
system, which will send notification of such filing to the following CM/ECF participants:
Kirk E. Chapman Thomas Matthew Brennan
Milberg Weiss LLP (NY) McKay Chadwell
One Pennsylvania Plaza 600 University Street, Suite 1601
New York, NY 10119-0165 Seattle, WA 98101
212-594-5300 206-233-2800
Fax: 1-212-868-1229 Email: tmb@mckay-chadwell.com
Email: kchapman@milbergweiss.com
Nicholas J. Leonardis C. Seth Wilkinson
Stathis & Leonardis LLC Yarmuth Wilsdon Calfo
32 South Main Street 925 Fourth Avenue, Suite 2500
Edison, NY 08837 Seattle, WA 98104
732-494-0600 206-516-3800
Email: NLeonardis@verizon.net Email: swilkinson@yarmuth.com
Robert G. Chadwell Daniel J. Dunne, Jr.
McKay Chadwell Heller Ehrman LLP (WA)
600 University Street, Suite 1601 701 5th Avenue, Suite 6100
Seattle, WA 98101 Seattle, WA 98104-7098
206-233-2800 206-447-0900
Fax: 206-233-2809 Fax: 206-447-0375
Email: rgc1@mckay-chadwell.com Email: daniel.dunne@hellerehrman.com
Ross B. Brooks Harold Malkin
Milberg Weiss LLP (NY) Yarmuth Wilsdon Calfo
One Pennsylvania Plaza 925 Fourth Avenue, Suite 2500
New York, NY 10119-0165 Seattle, WA 98104
212-594-5300 206-516-3800
Email: rbrooks@milbergweiss.com Fax: 206-516-3888
Email: hmalkin@yarmuth.com
Matthew L. Harrington
Heller Ehrman LLP (WA) Laurie Mae Thornton
701 5th Avenue, Suite 6100 Corr Cronin Michelson
Seattle, WA 98104-7098 Baumgardner & Preece
206-447-0900 1001 4th Avenue, Suite 3900
Email: m.harrington@hellerehrman.com Seattle, WA 98154-1051
206-274-8666
Email: lthornton@corrcronin.com
continued...
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Michael F. McCabe
Reed Smith LLP (SF-CA)
Two Embarcadero Center, Suite 2000
San Francisco, CA 94111
415-543-8700
Email: mmccabe@reedsmith.com
Rosalie Euna Kim
Reed Smith LLP (SF-CA)
Two Embarcadero Center, Suite 2000
San Francisco, CA 94111
415-543-8700
Email: ekim@reedsmith.com
Paul R. Raskin
Corr Cronin Michelson
Baumgardner & Preece
1001 4th Avenue, Suite 3900
Seattle, WA 98154-1051
206-625-8600
Email: praskin@corrcronin.com
DATED October 1, 2007.
s/ Peter Winn
PETER A. WINN
Assistant United States Attorney
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