There is no honor among thieves and it’s reasonable to assume the same holds true about drug dealers. That’s why I take seriously the damning charges former McKinsey & Co. partner Dr. Arnab Ghatak has made in a lawsuit alleging the consulting firm made him the scapegoat for its extensive opioid peddling activities and that its global managing partner, Bob Sternfels, lied to the U.S. Congress and the public.
Reuters quoted an unidentified McKinsey spokesperson saying Ghatak’s lawsuit is “entirely meritless.” I trust McKinsey’s spokesperson as much as I do the multiple GM spokespersons who told the New York Times that “customer trust is a priority for us,” despite the publication’s impressive reporting on how the automaker surreptitiously monitored the driving habits of its customers and sold the data to brokers who shared the info with insurance companies.
The Times also did some impressive reporting on McKinsey’s opioid peddling and the firm’s undeniable contribution to America’s drug crisis, which I wrote about two years ago (see here and here).
The Times revealed that McKinsey had its consulting tentacles in all aspects of pharmaceutical narcotics sales, ranging from the harvesting of the raw materials to devising sophisticated marketing strategies on how to enlist doctors to become narcotics prescribers.
As the opioid crisis progressed, McKinsey also advised U.S. agencies on how to mitigate the fallout, while simultaneously advising its pharmaceutical clients on how best to deal with those agencies. Underscoring that McKinsey knew full well the harm its activities would cause, the firm prepared spreadsheets estimating how many customers of companies, including CVS and Anthem, might overdose taking OxyContin. The Times said CVS and Anthem were among McKinsey’s biggest customers.
As is typical under American jurisprudence, CEOs are rarely held responsible for wrongdoing under their watch, despite their obscene compensations where it’s reasonable to expect they are so incredibly talented and capable they could at least ensure that the businesses they oversee acted ethically and responsibly. Instead, some underlings invariably take the fall, and spokespersons express umbrage that these supposedly dishonest souls violated their organizations’ pious codes of conduct, which clearly state an uncompromising adherence to unrivaled standards of ethics and morals.
That essentially is what Ghatak, a McKinsey lifer who spent more than two decades at the consulting firm and whose various responsibilities included overseeing its Pharmaceuticals & Medical Products and Public & Social Sector practices, alleges. Ghatak was one of two McKinsey employees who were unceremoniously fired because of McKinsey’s opioid activities, but in Ghatak’s case, it wasn’t his opioid consulting activities that got him sacked.
Rather, Ghatak was publicly accused of destroying documents, in supposed violation of McKinsey’s “Document Retention Policy.” According to Ghatak’s lawsuit, McKinsey had no such policy and that global managing partner Bob Sternfels was lying when he told Congress that one existed.
In fact, Ghatak alleges that deletion of documents was company policy.
“McKinsey not only lied to create a damning narrative around document deletion to create a scapegoat as a diversion from their own decades long work in non abuse deterrent opioids, they also chose to do it to a physician who spent his professional life trying to help patients and was working on a part of the solution to the opioid crisis,” Ghatak alleges in his lawsuit.
Anyone can make allegations in a lawsuit, so Ghatak’s charges shouldn’t be viewed as fact until proven in court. But some of what he alleges has a familiar and disturbing ring of how powerful companies operate when they seek to hang out employees to dry.
Ghatak alleges that former “Chief People Officer” Judith Hazelwood on November 29, 2020 asked that he take a voluntary leave, assuring him she wouldn’t make any announcements and “that the matter would be handled discreetly with his clients and teams who needed to know.” According to Ghatak, within five minutes after promising that his taking a leave would be handled discreetly, Hazelwood informed McKinsey’s approximately 1,000 North American partners that he was going on administrative leave, pending an evaluation.
Reading Ghatak’s allegations about Hazelwood, I immediately recalled how Houston Methodist was so eager to publicize that it had cancelled the hospital privileges of ENT Doc Mary Talley Bowden at the height of the pandemic that it notified a local reporter even before Bowden had an opportunity to read the email the hospital sent notifying her of its decision. Bowden’s sin was continuing to prescribe ivermectin to treat Covid, despite the FDA’s insistence it was a “veterinary drug.”
The FDA recently agreed to remove all its ivermectin veterinary drug references to settle a lawsuit filed on Bowden’s behalf. The settlement received scant media attention, unlike the extensive coverage of Bowden’s suspension.
The timing of Ghatak’s lawsuit may be related to the “exclusive” the Wall Street Journal reported last week that the Justice Department was investigating McKinsey consulting work to manufacturers of OxyContin and other opioid products. WSJ said federal prosecutors are also probing “whether McKinsey or any of its employees may have obstructed justice in relation to records of its consulting services for opioid producers.”
The Journal glossed over that the DOJ’s investigation “has been ongoing for several years.” The only possible news in the Journal’s story is that the DOJ has empaneled a grand jury in Virginia to review the allegations.
As I’ve previously argued, leaked stories about DOJ criminal targets should be viewed with skepticism, particularly if they are reported by the Wall Street Journal, which has fast morphed into a click bait publication touting dubious “exclusives” containing scant analysis and perspective. Another example of a WSJ hyped “exclusive” was this story saying that Donald Trump has drawn up plans to blunt the Federal Reserve’s influence. According to a LinkedIn post by former WSJ reporter Charlie Gasparino, who now works for FOX and writes a column for the New York Post, Trump’s Fed plans were a “what if” exercise drawn up by some junior people.
Thoughtful WSJ readers who haven’t yet cancelled their subscriptions should be asking why a DOJ investigation of McKinsey is still ongoing. In 2021, McKinsey reached a settlement with all 50 states, five U.S. territories, and Washington, D.C., to pay $642 million to resolve civil opioid-related litigation against the firm, without admitting wrongdoing. The firm in 2023 reached separate deals totaling $347 million with Native American tribes, public school districts, insurance companies and municipal governments, also without admitting wrongdoing.
McKinsey said it settled with state attorneys general because it wanted “to achieve finality and avoid the inherent cost and risk of litigating in venues across the country,” and “be part of the solution to a complex public health crisis,” by contributing to opioid-abatement efforts without admitting liability.
The New York Times managed to provide a detailed accounting of the damning evidence that led to McKinsey’s $642 million multistate settlement in February 2021. A couple of Times reporters published a detailed book about McKinsey’s activities in October 2022. While the wheels of justice are said to grind slowly, the DOJ’s McKinsey investigation appears to be moving slower than traffic on Los Angeles’ 405 freeway before a holiday weekend.
Notably, in September 2022 the Times published another damning story detailing how McKinsey counseled Juul Labs and abetted the vaping company’s successful marketing efforts to promote flavored, supercharged nicotine vapor through a sleek device easily hidden from parents and teachers.
In its follow up story, the Times reported that internal McKinsey documents revealed that Bob Sternfels, McKinsey’s managing partner and the executive alleged to have lied to Congress, played an administrative role on the Juul account. A McKinsey spokesperson insisted that while Sternfels knew a senior Juul executive, he didn’t work on the account.
I’ve already shared my skepticism about anything McKinsey’s spokespersons have to say.
Even if the DOJ pursues criminal charges against McKinsey, it’s far from certain the law enforcement agency has the requisite talent to make the charges stick. Here’s a detail WSJ omitted from its McKinsey “exclusive,” possibly not to upset the source(s) who leaked the story.
U.S. District Judge Colm Connolly in March tossed two of the government’s four claims against Walmart and left the Justice Department with a formidable challenge to prevail on the remaining allegations. The two claims Connolly dismissed concerned theories about Walmart pharmacies failing to report suspicious transactions and internally document “red flags,” or indicia of illegitimate prescribing activity.
According to Joe Grogan, director of the U.S. Domestic Policy Council in the Trump administration, the Justice Department must now show that chain pharmacists were obliged to do better spotting, investigating and halting what might have been illegitimate prescriptions from Drug Enforcement Agency-approved doctors — a task that federal law assigns to the government.
The Controlled Substances Act designates the DEA as the primary regulator for opioid prescribers. A 2019 Justice Department inspector general report concluded that DEA had been “slow to respond to the significant rise in the use and diversion of opioids” between 2010 and 2017. State attorneys general have documented similar trends.
“The government’s exotic theories of liability are outside the text of the law, inconsistent with the policy landscape and inconsistent with common sense. And all of this after a well-reported internal clash within the Justice Department as to whether the government should pursue criminal charges against (Walmart),” Grogan wrote in an op-ed.
The media has given the DOJ a pass on the sweetheart deferred prosecution agreement it gave Boeing after two of its MAX planes crashed because of a flawed design. A deferred prosecution agreement is when the DOJ agrees not to prosecute a company providing that it acts responsibly going forward. The agreement, which only required Boeing to pay a $2.5 billion fine, was set to expire just days after an Alaska Airlines MAX jet lost a chunk of its fuselage at 16,000 ft.
Had the DOJ prosecuted Boeing, perhaps CEO Dave Calhoun would have been forced out and the company’s deterioration halted or reversed. Instead, Calhoun remained in place and has since pocketed compensation valued at $80 million.
The DOJ, of course, has bigger fish to fry. One of its targets is Charlie Javice, a 31-year-old founder of a college financial aid company who allegedly outwitted the due diligence brains at JPMorgan Chase and exaggerated the number of her enterprise’s accounts when the bank purchased the business for $175 million.
Javice said in a court filing that JPMorgan didn’t produce “likely thousands” of documents, including its internal assessment of the acquisition, its internal investigation of the business, and internal communications between JPMorgan employees.
“The government’s response has been deliberate inaction, making clear that although JPMC holds highly relevant, potentially exculpatory, readily available materials that are responsive to the government’s subpoenas, the government does not intend to collect them,” the filing said.
Javice added that the “government seems content to rest its entire complaint (and theory of the case) on JPMC’s cherry-picked set of documents.”
To put Javice’s wrongdoing in perspective, the DOJ allowed JPMorgan to get off with a $920 million wrist slap to settle allegations that it defrauded the precious metals and U.S. Treasuries markets. Gregg Smith, 59, of Scarsdale, New York, was sentenced to two years in prison and received a $50,000 fine for his role in the trading scheme and Michael Nowak, 49, of Montclair, New Jersey, was sentenced to one year and one day in prison and a $35,000 fine.
Javice faces a possible total of 30 years in prison.
Department of Justice? Not in my book.
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