SEC v. Schering-Plough Corporation, District of Columbia (June 9, 2004) — Complaint

UNf?‘ELS STATES DISTRlCT COURT 
FOR THE DTSTRICT OF COLUMBIA 
SECURITIES AND EXCHANGE COMMISSION, 
450 Fifth Street, N.W. 
Washington, D .C. 20549-070 8, CASE NUMBER 1:O4CVOo945 
Plaintiff, 
V. 
JUDGE: Paul L. Friedman 
DECK TYPE: General Civil 
DATE STAMP: 06/09/2004 
SCHERNG-PLOUGH COWORATION, 
Dcfktid ants. 
COMPLAINT 
Plaintiff Securities and Exchange Commission (“the Coinmission”) akgcs as 
€oilows: 
SUMMARY 
1. This matter involves Defendant Schering-Plough Corporation’s (“Schering- 
Plough”) violations of the books arid rccords and intenla1 controls provisions of the 
Foreign Corrupt Practices Act (“FCPA”), Sections 13(b)(2)(A) and 13(b)(2)(B) ofthe 
Securities Exchange Act of 1934 (“Exchange Act”). Between February 1999 and March 
2002, Schering-Plough Poland paid 3 1.$,800 zlotys (PLN) (approximately $76,000) to a 
charitable foundation to induce the foundation’s president, who was also a Polish 
government official, to innuencc the purchase of Schcritig-Plough’s phaminceutical 
products. 
None or the payments to the charity was accurately reflected in Schcring- 
Plough’s books and records. Additionally, Schcring-Plough’s system of internal 
accounting controls was inadequate to prcvent or detect the improper payments. 

JURISDICTlON 
2. 
Exchange Act. 
This Court has jiirisdiction ovcr this action pursuant to Section 27 of the 
DEFENDANT 
ScherinE-Plough Corporation (“Schering-Plough”) is a New Jersey 
3. 
corporation with its headquarters in Kenilworth, Ncw Jersey, Its common stock is 
registered with the Commission pursuant to Section 12(b) of thc Exchange Act and is 
listed QII the New York Stock Exchange. 
OTHER RELEVANT ENTITIES 
4. ScherinR-Plough Poland (“S-P Poland’)), headquartered in Warsaw, Poland, is 
a branch office of Schering-Plough Central East AG, a whoIly owned Swiss subsidiary of 
Schering-Plough that is headquartered in Lucerne Switzerland. 
5 - The Chudow Castle Foundation (“Foundation”) is a charitable organization that 
was established in 1995 to restore castles and other historic sites in the Silesian region of 
Poland. The lounder and President of the Foundation was the Director of the Silesian Health 
Fund (“Director”), one of sixteen regional govcrninent Iiealth authorities in Poland. 
FACTS 
6. 
The Silesian Health Fund was a govcmmeiit body that, among other things, 
provided monies for the purchase of pharmaceutical products and influenced the purchase of 
those products by other cntitics, such as IiospitaJs, through the allocation of health fund 
resources. In Fcbruary 1999, shortly after the Director assuined his position of leadership in 
the Silesian Health Fund, S-P Poland madc the first of a series of payments to the Foundation. 
2 

7. 
In early 2000, thc Director solicited S-P Poland’s oncology unit tnanagcr (“the 
Manager”) to make additional payinelits to the Foundation. Between March 2000 and 
March 2002, the Marlagcr arranged for twelve idditional payments rrom S-P Poland to 
the Foundation. Somc of these payments wcrc structured so that they wcrc at or below 
the Manager’s approval limit, apparently for the purpose of‘ conccaling the nature of the 
payments. Moreover, the Manager provided false medical justifications for most of the 
payments on the documents that lie submitted to the company’s finance dcpartmcnt. Tn 
total, S-P Poland paid 3 15,800 PLN (approximately $76,000) to thc Foundation, as 
summarized in the table below. 
~~ 
Pa ymentAmount 
(in PLN arid $US) 
Stated Medical Justification for Payments 
Date 
of 
Pa yment 
TI----- 2/23/ 1 999 
Coveririg - fight against viral hepatitis 
Support ol‘licalth campaign within county 
of Gilwice 
-- 
3,000 PLN ($777) 
20,000 PLN ($4,909) 
34,800 YLN ($8,065) 
Financing secorid stagc of health 
prevention campaign in Gilwice 
__ ~ 
Financing for Foundation 
Financing second stage of research 
40.000 PLN ($8.766) 
40,000 PLN ($9,292) 
q-mm- 3/ 19/2OO 1 
18.000 PLN ($4,340) 
Financing lung cancer prevention prograin 
Financing screening examinations to 
detect skin cancer 
Support of lung cancer prevention 
20,000 PLN ($4,854) 
I 4/25’2001 
20,000 PLN ($4,958) 
9 1 6/4/2001 
20,000 
PLN ($5,019) Support of lung cancer prevention 
campaign 
Support of a coronary disease prevention 
program 
and promote the image ofthe 
company in the medical community 
Support of an anti-chain smoking health 
program and promote the company as one 
that cares about the mode of SiIesia 
20,000 PLN ($4,878) I0 IO/29/2OO 1 
40,000 PLN (9; 1 0,067) 
1 1 12/18/2001 
12 
1 12/19/2001 
20,000 PLN ($5,067) 
Financing of Foundation 
20,000 
PLN ($4,868) 
Support actions of Foundation in 
meventing infectious diseases of the liver 
13 3/25/2002 
I Total 
3 15,800 PLN ($75,860) 
3 

8. 
S-P Poland paid morc money to the Foundation than any othcr recipient of 
promotional donations. During 2000 and 2001 , the paynicnts to thc Foundation 
constituted approximately 40% and 20%, respectivcly, of S-P Poland’s total promotional 
donations budget. Morcovcr, the Foundation was thc only rccipient of such donations 
that received multiple payments, making thc four payments in 2000 and scven payments 
in 2001 highly unusual. 
9. 
All of thc paymcnts to the Foundation wcrc classificd by S-P Poland in its 
books and records as donations. Howcvcr, while the payments in fact wcrc made to a 
bona fide charity, they were made to influence the Director with respect to the purchase 
of Schering-Plough’s products. In fact, the Manager did not view the payments to the 
Foundation as charitable, but as “dues” that were required to be paid for assistance from 
the Director. 
10. During thc period in which thc payments wcrc bcing made to the Foundation, 
S-P Poland’s sales of hitroil A and Teinodal, two of its oncology products, incrcascd 
disproportionately compared with sales of those products in other rcgions of Poland. By 
2002,53% of the Intron A and 40% of the Teinodal sold in Poland were in Silesia. 
1 1. 
Prior to March 2082, Schering-Plough’s policies and procedurcs for detecting 
possible FCPA violations by its foreign subsidiaries were inadcquate in that they did not 
require employees to conduct any due diligence prior to making promotional or charitable 
donations 
to determine whether any governmciit officials were affiliated with proposed 
recipients. For this reason, the Director of the Silesian I-Iealtli Fund’s relationship to the 
Foundation was ncver considered by S-P Polaiid as a potential FCPA issue. 
4 

12- 
S-P Poland’s inkrnal policics provided that promotiorid donatioris generally 
were supposed to be made to hcalthcarc institutions and relate to thc practice of medicine. 
Although the Foundation rcprescntcd to S-P Poland that its by-laws pemiitted the 
Foundation to engage in hcalthcare related proganis, the Commission alleges that thc 
Manager knew that the Foundation did not, in fact, crigagc in such programs. 
13. 
The company should have becn alcrted to the fact that there were FCPA issues 
dating to S-P Poland’s paymcnts to the Foundation, bccausc: (i) the Foundation is not a 
healthcare related entity, yet still received payments; (ii) of the magnitudc of the 
payments to the Foundation in relation to the company’s budget for such donations; (iii) 
of the apparent structuring of certain payments by the Manager, which allowed him to 
exceed his authorization limits; and (iv) the Director was the founder and Prcsident of 
Foundation and also a Polish government official with thc ability to iiifluence the 
purchase of S-P Poland’s products by hospitals within the Silcsian Health Fund. 
CLAIM 
Violations of Sections 13(b)(2)(A) and 13(B)(2)(B) of the Exchangc Act 
(Books and Records and Internal Controls) 
14. 
15. 
Paragraphs 1 through 13 are hereby realleged and incorporated by reference. 
By reason of the foregoing, Scheriiig Plough violated Sections 13(b)(Z)(A) 
and 13(B)(2)(B) of the Exchange Act. 
5 

? 
PRAY EK FOR RELIEF 
16. 
The Commission respectfully requests that this Court enter a Final Judgment 
against Defendant Schcriag-Plough Corporation ordering it to pay a civil penalty 
pursuant to Scction 21(d)(3) of the Exchangc Act. 
Respect Tull y submitted, 
Antonia Chion 
Scott W. Fricstad 
Daniel M. Hawke (D.C. Bar No. 424874) 
Howard A. Scheck 
Steven A. Susswein 
Attorneys for PJaiiitiff 
S ec uri ti es and Exchange C omm i ssi on 
450 Fifth Street, N.W. 
Washington, D.C. 20549-09 1 1 
Tel: 202-942-4732 (Friestad) 
Fax: 202-628-4222 
6 

UNf?‘ELS STATES DISTRlCT COURT 
FOR THE DTSTRICT OF COLUMBIA 

SECURITIES AND EXCHANGE COMMISSION, 
450 Fifth Street, N.W. 
Washington, D .C. 20549-070 8, CASE NUMBER 1:O4CVOo945 

Plaintiff, 

V. 

J U D G E :  P a u l  L. Friedman 

DECK TYPE: G e n e r a l  C i v i l  

DATE STAMP: 0 6 / 0 9 / 2 0 0 4  
SCHERNG-PLOUGH COWORATION, 

Dcfktid ants. 

COMPLAINT 

Plaintiff Securities and Exchange Commission (“the Coinmission”) akgcs as 

€oilows: 

SUMMARY 

1. This matter involves Defendant Schering-Plough Corporation’s (“Schering- 

Plough”) violations o f  the books arid rccords and intenla1 controls provisions of the 

Foreign Corrupt Practices Act (“FCPA”), Sections 13(b)(2)(A) and 13(b)(2)(B) ofthe 

Securities Exchange Act of 1934 (“Exchange Act”). Between February 1999 and March 

2002, Schering-Plough Poland paid 3 1.$,800 zlotys (PLN) (approximately $76,000) to a 

charitable foundation to induce the foundation’s president, who was also a Polish 

government official, to innuencc the purchase of Schcritig-Plough’s phaminceutical 

products. None or the payments to the charity was accurately reflected in Schcring- 

Plough’s books and records. Additionally, Schcring-Plough’s system of internal 

accounting controls was inadequate to prcvent or detect the improper payments. 



JURISDICTlON 

2. 

Exchange Act. 

This Court has jiirisdiction ovcr this action pursuant to Section 27 of the 

DEFENDANT 

ScherinE-Plough Corporation (“Schering-Plough”) is a New Jersey 3. 

corporation with its headquarters in Kenilworth, Ncw Jersey, Its common stock is 

registered with the Commission pursuant to Section 12(b) of thc Exchange Act and is 

listed QII the New York Stock Exchange. 

OTHER RELEVANT ENTITIES 

4. ScherinR-Plough Poland (“S-P Poland’)), headquartered in Warsaw, Poland, is 

a branch office of Schering-Plough Central East AG, a whoIly owned Swiss subsidiary of 

Schering-Plough that is headquartered in Lucerne Switzerland. 

5 - The Chudow Castle Foundation (“Foundation”) i s  a charitable organization that 

was established in 1995 to restore castles and other historic sites in the Silesian region of 

Poland. The lounder and President of the Foundation was the Director of the Silesian Health 

Fund (“Director”), one of sixteen regional govcrninent Iiealth authorities in Poland. 

FACTS 

6. The Silesian Health Fund was a govcmmeiit body that, among other things, 

provided monies for the purchase of pharmaceutical products and influenced the purchase of 

those products by other cntitics, such as IiospitaJs, through the allocation of health fund 

resources. In Fcbruary 1999, shortly after the Director assuined his position of leadership in 

the Silesian Health Fund, S-P Poland madc the first of a series of payments to the Foundation. 

2 



7. In early 2000, thc Director solicited S-P Poland’s oncology unit tnanagcr (“the 

Manager”) to make additional payinelits to the Foundation. Between March 2000 and 

March 2002, the Marlagcr arranged for twelve idditional payments rrom S-P Poland to 

the Foundation. Somc of these payments wcrc structured so that they wcrc at or below 

the Manager’s approval limit, apparently for the purpose of‘ conccaling the nature of the 

payments. Moreover, the Manager provided false medical justifications for most of the 

payments on the documents that lie submitted to the company’s finance dcpartmcnt. Tn 

total, S-P Poland paid 3 15,800 PLN (approximately $76,000) to thc Foundation, as 

summarized in the table below. 
~~ 

Pa ymentAmount 
(in PLN arid $US) 

Stated Medical Justification for Payments Date of 
Pa yment TI----- 2/23/ 1 999 Coveririg - fight against viral hepatitis 

Support ol‘licalth campaign within county 
of Gilwice 

-- 3,000 PLN ($777) 
20,000 PLN ($4,909) 

34,800 YLN ($8,065) Financing secorid stagc of health 
prevention campaign in Gilwice 

_ _  ~ 

Financing for Foundation 
Financing second stage of research 

40.000 PLN ($8.766) 
40,000 PLN ($9,292) q - m m -  3/ 19/2OO 1 18.000 PLN ($4,340) Financing lung cancer prevention prograin 

Financing screening examinations to 
detect skin cancer 
Support of lung cancer prevention 

20,000 PLN ($4,854) 

I 4/25’2001 
20,000 PLN ($4,958) 

9 1 6/4/2001 20,000 PLN ($5,019) Support of lung cancer prevention 
campaign 

Support of a coronary disease prevention 
program and promote the image ofthe 
company in the medical community 
Support of an anti-chain smoking health 
program and promote the company as one 
that cares about the mode o f  SiIesia 

20,000 PLN ($4,878) I0 IO/29/2OO 1 

40,000 PLN (9; 1 0,067) 1 1 12/18/2001 

12 1 12/19/2001 20,000 PLN ($5,067) Financing of Foundation 
20,000 PLN ($4,868) Support actions of Foundation in 

meventing infectious diseases of the liver 
13 3/25/2002 

I Total 3 15,800 PLN ($75,860) 

3 



8. S-P Poland paid morc money to the Foundation than any othcr recipient of 

promotional donations. During 2000 and 2001 , the paynicnts to thc Foundation 

constituted approximately 40% and 20%, respectivcly, of S-P Poland’s total promotional 

donations budget. Morcovcr, the Foundation was thc only rccipient of such donations 

that received multiple payments, making thc four payments in 2000 and scven payments 

in 2001 highly unusual. 

9. All of thc paymcnts to the Foundation wcrc classificd by S-P Poland in its 

books and records as donations. Howcvcr, while the payments in fact wcrc made to a 

bona fide charity, they were made to influence the Director with respect to the purchase 

of Schering-Plough’s products. In fact, the Manager did not view the payments to the 

Foundation as charitable, but as “dues” that were required to be paid for assistance from 

the Director. 

10. During thc period in which thc payments wcrc bcing made to the Foundation, 

S-P Poland’s sales of hitroil A and Teinodal, two of i t s  oncology products, incrcascd 

disproportionately compared with sales of those products in other rcgions of Poland. By 

2002,53% of the Intron A and 40% of the Teinodal sold in Poland were in Silesia. 

1 1. Prior to March 2082, Schering-Plough’s policies and procedurcs for detecting 

possible FCPA violations by its foreign subsidiaries were inadcquate in that they did not 

require employees to conduct any due diligence prior to making promotional or charitable 

donations to determine whether any governmciit officials were affiliated with proposed 

recipients. For this reason, the Director of the Silesian I-Iealtli Fund’s relationship to the 

Foundation was ncver considered by S-P Polaiid as a potential FCPA issue. 

4 



12- S-P Poland’s inkrnal policics provided that promotiorid donatioris generally 

were supposed to be made to hcalthcarc institutions and relate to thc practice of medicine. 

Although the Foundation rcprescntcd to S-P Poland that its by-laws pemiitted the 

Foundation to engage in hcalthcare related proganis, the Commission alleges that thc 

Manager knew that the Foundation did not, in fact, crigagc in such programs. 

13. The company should have becn alcrted to the fact that there were FCPA issues 

dating to S-P Poland’s paymcnts to the Foundation, bccausc: (i) the Foundation is not a 

healthcare related entity, yet still received payments; ( i i )  of the magnitudc of the 

payments to the Foundation in relation to the company’s budget for such donations; (iii) 

of the apparent structuring of certain payments by the Manager, which allowed him to 

exceed his authorization limits; and (iv) the Director was the founder and Prcsident of 

Foundation and also a Polish government official with thc ability to iiifluence the 

purchase of S-P Poland’s products by hospitals within the Silcsian Health Fund. 

CLAIM 

Violations of Sections 13(b)(2)(A) and 13(B)(2)(B) of the Exchangc Act 
(Books and Records and Internal Controls) 

14. 

15. 

Paragraphs 1 through 13 are hereby realleged and incorporated by reference. 

By reason of the foregoing, Scheriiig Plough violated Sections 13(b)(Z)(A) 

and 13(B)(2)(B) of the Exchange Act. 

5 



? 

PRAY EK FOR RELIEF 

16. The Commission respectfully requests that this Court enter a Final Judgment 

against Defendant Schcriag-Plough Corporation ordering it to pay a civil penalty 

pursuant to Scction 21(d)(3) of the Exchangc Act. 

Respect Tull y submitted, 

Antonia Chion 
Scott W. Fricstad 
Daniel M. Hawke (D.C. Bar No. 424874) 
Howard A. Scheck 
Steven A. Susswein 

Attorneys for PJaiiitiff 
S ec uri ti es and Exchange C omm i ssi on 
450 Fifth Street, N.W. 
Washington, D.C. 20549-09 1 1 
Tel: 202-942-4732 (Friestad) 
Fax: 202-628-4222 

6