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The Star-Ledger
$52M-plus payday for
Christie's old boss
Ashcroft firm to
monitor med-implant settlement
BY JOHN P. MARTIN &
JEFF WHELAN, nj.com on the Web, November 20, 2007
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.
John P. Martin may be reached at (609) 989-0379 or
jmartin@starledger.com. Jeff
Whelan may be reached at (973) 622-3405 or
jwhelan@starledger.com.
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