An article in the most recent issue of the Food and Drug Law Institute’s FDLI Update talks about the important benefits — and risks — when a corporate defendant tells the prosecutor that “my lawyer said it was OK.”

The article (pdf) was written by John Fleder, a principal in the Washington, D.C., office of Hyman, Phelps & McNamara. Fleder writes that the government has become more aggressive in prosecuting corporate lawyers who become part of a fraudulent scheme.

He cites the little-known case of general counsel Paul Kellogg, who was sentenced to a year in prison and three years probation in 2008 for allegedly obstructing proceedings before the Food and Drug Administration and the Federal Trade Commission.

According to government records, Kellogg was in-house counsel at Berkeley Premium Nutraceuticals in West Chester, Ohio. Among other things, the company sold dietary supplements and other pills that it claimed in TV ads would increase the size of a man’s penis by four inches.

A jury in federal district court in Cincinnati found that the company and the individuals illegally made millions of dollars after sending customers supplements they did not order, charging customers' credit cards without authorization, misrepresenting their business activities, and laundering money through bank and investment accounts. Along with other executives, Kellogg was convicted on six counts of conspiracy and money laundering.

According to an earlier article on the law firm’s Web site, Kellogg’s case is one of only a handful of criminal charges against in-house lawyers arising under FDA violations. And it contains important lessons for in-house counsel.

Kellogg did more than offer legal advice, the article states; he actually took part in the scheme. When FDA inspectors tried to check labels on bottles of supplements, Kellogg allegedly directed employees to ship them to another site and then bring them back when the inspectors left.

A second count involved a trust set up to hide and launder illegal money. Although an outside lawyer created the trust, Kellogg allegedly had knowledge of its purpose and agreed to be the trustee.

One lesson for in-house lawyers, the article states, is that playing any role beyond legal advice could land the counsel in hot water. Also, the article suggests that simply claiming that the company or the general counsel relied on advice of outside counsel is not enough “where that advice suggests a clearly unlawful path.”

via Law.com – Little-Known Case Offers Lesson for In-House Counsel on Risk of Fraudulent Schemes.