Legal Insight

Legal Ethics Case Study: The Fen-Phen Settlement Fraud Caught in a Legal Web

Legal ethics rules and opinions don’t exist in a vacuum. They are good-faith attempts to provide practical guardrails for the complex and ever-changing behemoth that is the practice of law, and they have plenty of flexibility. Once those lines truly begin to blur, however, the situation can rapidly escalate as your career loses its footing. Depending on which way you trip, you may find yourself ensnared in more than one net.

That reality is especially important for Kentucky attorneys now because the Kentucky Supreme Court has proposed a major restructuring of the Commonwealth’s attorney discipline system (to be made effective July 1, 2027). Those changes will not simplify the disciplinary process for lawyers. Rather, the new rules add new institutional players, redistribute authority, compress deadlines, and revise confidentiality mechanics. The changes often matter most when the underlying facts leading to attorney discipline also relate to past or present civil litigation, criminal exposure, and parallel state and federal proceedings.

How complex can it get?

No better example of the complex web of legal ethics liability can be described than the notorious Kentucky “Fen-Phen” case from the early 2000s. That story followed a combination of two diet drugs that also happened to create serious heart conditions in a substantial number of patients. It ended with a series of disbarments for lawyers and a judge involved (even lengthy prison sentences for some), and the case highlighted how rules regarding professional disciplinary investigations, civil lawsuits and criminal cases at the time worked together – or, just as often, didn’t.

In a case widely reported in the news at the time, the attorneys devised and employed a scheme to disburse only about $50 million of the $200 million settlement they reached with the pharmaceutical company defendant on behalf of more than 400 clients, far beyond their agreed fee of 33%. When other parties (including law partners) questioned the arrangement, the lawyers sought ways to legitimize their efforts, eventually obtaining a court-approved attorney fee of 49% and making a second flat disbursement to clients. The remaining money was used to create a fake charity controlled by insiders, with stipends paid to board members and meetings held at Keeneland and Pebble Beach golf course.

An investigation by the Kentucky Bar Association (KBA) was initiated, clients filed civil actions, the Judicial Conduct Commission examined the judge’s role, and the FBI and Justice Department took interest. The KBA Inquiry Commission then started tracing the attorneys’ finances, and when subpoenas issued for personal accounts, the attorneys moved millions of dollars that they had already paid to themselves into other accounts which they convinced the judge to falsely claim had been under the supervision of the court the entire time.

At the time, the disciplinary process operated under confidentiality rules that kept the bar investigation confidential until a case reached the Supreme Court’s public docket. Once a motion for temporary suspension hit the public docket, the matter escalated quickly. Civil discovery supplemented the disciplinary record, which helped advance the criminal investigation, which in turn increased the civil exposure. When the dust settled, five attorneys and a judge lost their licenses, two attorneys went to prison, and significant client claims followed.

Today, the confidentiality rule states that a discipline matter is “confidential prior to the filing of a verified answer to a Charge,” and SCR 3.150 also identifies circumstances in which the pendency, subject matter, and status may be disclosed.

You need advice with significant experience and broad perspective.

The Fen-Phen story and aftermath remain instructive because it shows that you don’t have to travel to New York or California or other more populous jurisdictions to find yourself (even tangentially) involved in highly complex attorney disciplinary litigation with overlapping civil, criminal, and judicial investigatory tracks. In these situations, the  discipline defense strategy must consider more than the attorney disciplinary rules and process alone.

The proposed upcoming changes to Kentucky’s attorney disciplinary structure and process have not been finalized. The proposed rules create an Attorney Discipline Oversight Commission (ADOC) as part of the Kentucky Supreme Court, with broad supervisory authority over the disciplinary system, create the Kentucky Supreme Court Office of Disciplinary Counsel as an arm of the Court and make many substantial changes to disciplinary procedure.

These sweeping changes only strengthen the fact that when discipline is tied to complex litigation, you need counsel who can defend the disciplinary case and understands the litigation engine underneath including: civil discovery pitfalls, criminal exposure, white-collar risk, multi-jurisdictional coordination, and confidentiality constraints.

At McBrayer, we have the experience and expertise to handle attorney discipline in that full context, alongside complex civil litigation, outside investigations, and white-collar criminal matters, because the real-world problems that trigger discipline commonly do not arrive alone.

Cary Howard, Jr., is Ethics Counsel, General Counsel and a Member of McBrayer PLLC. His law practice primarily focuses on legal ethics and malpractice defense. Mr. Howard can be reached at choward@mcbrayerfirm.com or 859.551.3708. 

Valerie Michael is a Member at McBrayer's Lexington office. She concentrates her practice around healthcare law and legal ethics and malpractice, covering a broad range of issues, including  professional licensure defense, compliance, and regulatory matters. She also manages civil and criminal cases involving Medicare and Medicaid fraud, as well as facility licensing and certification. Ms. Michael can be reached at vmichael@mcbrayerfirm.com. 

Services may be performed by others. This article does not constitute legal advice.