JULY 2008
New Delhi, India
As the Maryland U.S. Attorney’s Office filed its motion, alleging a “pattern of systemic fraudulent conduct,” Malvinder Singh faced his sharpest crisis yet. Questions loomed about Ranbaxy’s integrity, and the company’s stock price fell. The deal with Daiichi Sankyo had not been completed yet, and Malvinder needed a way to salvage it.
In a cagey call with reporters, Malvinder went public with his allegations of a conspiracy that he had previously shared with Tsutomu Une. “People are trying to create confusion and obviously somebody is trying to bring our price down so that they can [buy] at a lower price,” he told investors. “A multinational [company] and a leading Indian company are working in concert to bring our share price down,” he claimed, without offering any proof. Malvinder said Daiichi Sankyo was “aware of these issues while conducting due diligence. There is no change in the deal and there is no exit clause in it.”
Inside Ranbaxy, the principals huddled. They attended a meeting in Malvinder’s office marked “VIMP” (very important) in their calendars. The first agenda item: “Self assessment.” Almost everything aside from the SAR could be explained away, but that document alone would expose Malvinder’s claims as a lie.
The sense of crisis, and the phalanx of outside law firms to help manage it, was growing by the day. In late July 2008, company lawyer Jay Deshmukh traveled with the outside lawyer Chris Mead to a meeting at Ranbaxy headquarters that included Malvinder and other senior management, as well as two other external lawyers: Beardsley, the company’s longtime FDA lawyer, and Raymond Shepherd from Venable, brought in to deal with the new problem of scrutiny from the U.S. Congress. They needed a strategy to respond to the increasing tide of problems. In the car on the way to the meeting, Deshmukh confided in Mead that Daiichi Sankyo had not been told about the SAR because Malvinder would not allow it. Mead was furious.
At the meeting, the SAR again dominated the conversation. It became infuriatingly clear to Mead that the company had done little to respond to the allegations laid out in the SAR. He had learned, from a report Pant created, that the company continued to ship over sixty products that had been approved based on fake data. He was so frustrated that he pounded his fist on the conference table and shouted at Malvinder, “You just don’t get it!” He insisted that Ranbaxy stop shipping such products immediately, advice that Beardsley seconded. Mead explained that until the company fully dealt with the SAR, the government would not yield. Malvinder appeared to acquiesce and agreed to withdraw all affected products from global markets. Both Mead and Deshmukh urged him to disclose the SAR to Daiichi Sankyo. Malvinder responded, “I will deal with the Japanese.”
Among Ranbaxy executives, this came to be known as the “You just don’t get it” meeting. Malvinder did take one clear step after that meeting: he let go Mead’s firm and brought in another to deal with the Justice Department.
As Ranbaxy executives battled their own lawyers, FDA officials were preparing to take action. On September 16, 2008, just two months after prosecutors filed their motion, the agency announced that it was stopping the import of more than thirty drugs from two Ranbaxy plants, Dewas and Paonta Sahib. It also unveiled new warning letters for each plant. “With this action we are sending a clear signal that drug products intended for use by American consumers must meet our standards of safety and quality,” said Dr. Janet Woodcock, CDER’s director, in a press release.
As the compliance staff paused for a moment to celebrate, FDA officials held a media briefing to explain their new get-tough stance toward Ranbaxy. They were blocking the importation of the drugs from two of Ranbaxy’s plants. However, they were not demanding that the drugs be recalled from U.S. pharmacy shelves. Characterizing the action against Ranbaxy as “proactive,” Deb Autor told reporters, “FDA has no reason to believe the drugs from these two plants already in the U.S. drug supply pose a safety problem.” Stating that FDA tests showed that Ranbaxy drugs met specifications, she added, “FDA has no evidence that these Ranbaxy products are actually defective. But the manufacturing process and control problems the FDA has found could impact product and for this reason FDA has taken these proactive steps.”
Autor had served as an agency representative. Her statements, as she later said, “were simply a reiteration of FDA’s official position, which was, as always, the result of a lengthy internal deliberation process involving many people throughout the organization.” Nonetheless, her statements sparked fury inside the agency. The criminal investigators and compliance staff convened to discuss their veracity and impact. The FDA knew that two of Ranbaxy’s drugs, Sotret and gabapentin, had failed quality tests and posed a potential danger to patients. If the drugs were not defective, then what was the problem, and what leverage did the FDA have? Campbell didn’t know what to think. “Apparently there’s an idea, we don’t want to create a panic. It’s a lawyer thing,” he said. “Lawyers don’t have the same kind of conscience.”
The statements had floated the company a life raft and made the work of agency investigators that much harder. For years to come, Ranbaxy would invoke them in its efforts to fend off the FDA. In the short term, however, the FDA’s announcement of import restrictions and warning letters triggered a crisis inside the company that played out on three continents.
On a conference call the day after the FDA’s get-tough announcement, Malvinder Singh continued to insist to Une that Ranbaxy had done nothing wrong. He told Une that he was “shocked” by the developments. He claimed that Ranbaxy had been fully cooperative and there was “no sign or omen” that the FDA had been dissatisfied with its efforts.
Remarkably, despite every warning sign, the deal between the two companies remained on track. Ranbaxy agreed to turn over to the Justice Department the audits prepared by its consultant, Parexel, in their entirety, and the U.S. government withdrew its motion to enforce the subpoena. Une continued to express confidence in Malvinder, noting in his journal, “[Malav-San] responded to our requests in good faith on each matter and prepared accordingly. Things have started to work well.” He even counseled himself to be culturally sensitive and not to harbor negative thoughts. In one entry, he wrote, “Malav-San’s response to requests in connection with the FDA are slow. I understand that it is in the middle of the most celebrated festival but . . . Patience!”
On November 7, 2008, Daiichi Sankyo and Ranbaxy closed their transaction. A month later, the Japanese took majority control of Ranbaxy’s board. In the blink of an eye, Malvinder and his brother had added over $2 billion to their own bottom lines, and Malvinder went on to become an employee of the Japanese. It was an odd arrangement fraught with risk. But Ranbaxy lawyer Jay Deshmukh had new hope. Now that Ranbaxy had agreed to cooperate with the Justice Department and turn over the Parexel audits, perhaps the company could swiftly reach a deal with prosecutors that would make concealment of the SAR irrelevant. His guilt over lying to Une might lift. It would all be behind them. In the meanwhile, Deshmukh was in a strange new world. There was no more shouting—or decisions by fiat—in interactions with the Japanese. They operated by consensus, he found. It seemed to him that ten people got on the phone and little got done.
Despite Ranbaxy’s lurching difficulties, Une was pleased enough. It was his deal, and he documented it closely. “Mr. Singh fits in well,” he noted in his journal. But he also noted, as he delved into the work for his monthly Ranbaxy meetings, that the discussions on how to resolve the company’s FDA issues were “all just the beginning of the beginning.” On February 19, 2009, Une traveled to New Delhi and met with Malvinder. He was sorting through a host of issues, including how to balance Malvinder’s autonomy with Daiichi Sankyo’s governance and trying to understand the chronology of Ranbaxy’s troubles with the FDA. Something didn’t quite add up, but he wasn’t sure what.
He was back in Tokyo on February 25 when he got news that came as a body blow. The FDA announced that it would level the harshest punishment available on Ranbaxy—an Application Integrity Policy. An AIP was the drug regulator’s version of a scarlet “A.” The agency imposed it only when it deemed a company’s applications to be largely fraudulent or unreliable. Now the company would have to prove its products weren’t fraudulent in order to get them approved.
The AIP covered all the products for the U.S. market that Ranbaxy manufactured at Paonta Sahib. The action left no doubt as to the depth and extent of the problem. The stock market responded accordingly. Ranbaxy shares fell 18 percent and took Daiichi Sankyo’s down 9 percent with them. “Crisis!” Une noted in his journal. A gentleman to the core, however, he did not at that moment second-guess his most prominent employee, as another executive might have done. Instead, Une wrote, “even though it is the problem of the management of Malav-San, now is the time to cheer him up. We can criticize later.” Both Ranbaxy and Daiichi Sankyo formed crisis response teams. Within three days, Une was on a plane to New Delhi. There, he made continued efforts to understand why the FDA had clobbered the company.
As Malvinder continued to play dumb, Une was left with a Delphic riddle of sorts. Why would the FDA deem the entire company dishonest if, as Malvinder claimed, Ranbaxy had done everything right? All Une could do was parse the clues in front of him. He was a careful observer and wrote in his journal about his meetings with Malvinder and his deputies: “What I found out is that they also do not understand the reason AIP was invoked. They are not aware that the entire system was deemed suspicious even though it was partially fixed. Malav-San joined [the meeting] at the end. Members’ tone changes. They are very much afraid of him.”
Inside Ranbaxy, the AIP had caused tensions to boil over. Jay Deshmukh was at his wits’ end. He’d participated in a fraud, under direct orders from his boss. Now that Daiichi Sankyo needed to take charge of the FDA and Justice Department problems, it had every right to know the truth about their origins. The ongoing suppression of the SAR and the deceit perpetrated against Une seemed more indefensible with every passing day. And though Deshmukh had been put nominally in charge of cleaning up the trail of fraudulent dossiers, Malvinder’s loyalists inside the company were blocking that effort at every turn. In meetings, Deshmukh openly began to voice his dismay, on occasion even threatening to personally disclose the SAR to Daiichi Sankyo, airing a view that others shared but refused to say aloud.
Finally, in early March 2009, the growing conflict between Deshmukh and Malvinder broke out into the open. “We don’t think you’re doing things the right way,” Deshmukh told Malvinder at an operational meeting in India, with over a dozen people present.
“I’m going to stop you right there,” Malvinder interrupted him. “Who’s we and who’s you?”
“We are the lawyers,” Deshmukh said.
“Jay, I am very upset with you,” Malvinder responded. “You’re now looking at we and you, us and them? You’re not one of us?”
“Take it the way you want,” Deshmukh retorted. “I want this thing cleaned up. And you’re not doing it. Your guys are refusing to do things that the compliance lawyers and I are insisting be done.”
Not long after that clash, Malvinder called Deshmukh, who’d returned to the United States, and told him, “I want you in India.” He directed him to take the next flight over. Within seventy-two hours, Malvinder was glaring at Deshmukh across his desk and gave him three choices: he could leave voluntarily with a negotiated settlement; he could relocate to India and work on intellectual property but nothing else; or he could be fired and leave on bad terms. Deshmukh asked for a day to think it over.
That night Deshmukh went out for a drink with trusted colleagues and blew off steam. He complained that the company’s fall was all due to Malvinder, and that he was screwing over Ranbaxy’s twelve thousand employees and all their dependents. “There’s not too many people who are the worst people on the face of the earth, but this guy is one,” he said. He threatened to disclose the SAR to Daiichi Sankyo.
In bitterness, he had said way too much. The next day Malvinder hauled Deshmukh back into his office. The head of human resources was seated beside him. The meeting got instantly ugly. “I heard what you said,” Malvinder said, meaning that the lawyer’s remarks over drinks the night before had been relayed to him. Malvinder then directed the human resources director to leave. He told Deshmukh that if he chose to release the SAR to Daiichi Sankyo, Malvinder could take matters into his own hands. “I know where you live,” Malvinder said.
Deshmukh refused to cower: “Of course you know where I live, you idiot. You’ve come to my house.” He added, “Why don’t you get your HR person back in here, so he can hear your threats?” He then pointed out that if Malvinder tried to harm him while he was in the United States, “it’s going to come back and bite you very hard.” He added, for good measure, “I think it’s safe to say my Shiv Sena connections won’t appreciate that.” Deshmukh’s second cousin had helped form the Shiv Sena, a fearsome right-wing Hindu nationalist party linked to political violence.
“You’re a womanizer,” Malvinder shot back. “I have all the records on you.”
The men continued to trade insults. “If your father was alive today, he’d be ashamed,” said Deshmukh.
It was the lawyer’s last day at Ranbaxy. Malvinder forced him to resign. As he later reflected on Ranbaxy’s conduct, “Honestly, once you get to the point where you actually wholesale make up data points, hundreds and thousands . . . of data points, what’s to keep you from doing anything?” The effort to deceive Une continued, over the protest of Ranbaxy’s external lawyers. Had the microbiologist known about the SAR, he could have instantly decrypted the company’s woes. But without that crucial information, all he could do was keep on sifting the clues.
Around the time that Deshmukh left the company, Une flew to New York for a meeting at Giuliani Partners, yet another external adviser that Ranbaxy had hired, in the hope that the former mayor of New York, Rudolph Giuliani, could use his political heft to get the FDA to back off. The SAR was still not mentioned at the meeting, and Une was left to grapple with shadows. “I was told that Jay D-san of IP [Deshmukh] was the barrier of information,” he wrote in his journal. “I still do not know why Malav-san placed so much importance on Jay. (Jay has something on Malav?)”
Though Une was inching closer to the truth, a group of Malvinder’s top deputies and helpers still worked to keep the information from him. On March 16, 2009, Une was in New Delhi for a critical Ranbaxy board meeting. Before the meeting, Warren Hamel, an external Ranbaxy lawyer from the firm Venable LLP, emphasized to a company lawyer that the SAR had likely triggered the U.S. government’s investigation. But once Une arrived at the meeting, no one mentioned the SAR. After the meeting, Une noted in his journal that his “understanding of the background of the dealings with the FDA is still insufficient.”
As Ranbaxy’s problems with the FDA worsened, despite Malvinder’s claims that he was doing everything possible to resolve them, Daiichi Sankyo grew unsatisfied with his management. One Ranbaxy adviser urged Une to think of Malvinder “from the perspective of a parent raising a child.” At a compensation committee meeting on March 26, Une proposed to Malvinder that he forgo his bonus, owing to the deteriorating relationship with the FDA and the poor earnings result. Not only did Malvinder object. He broke down in tears. As Une noted in his journal, Malvinder “did not clarify problems of his own management, or his responsibility. In addition, he cried, exposing his vulnerability.”
By mid-April 2009, Une and his top executives had concluded that Malvinder wasn’t able to perform as a professional CEO. Une wrote in his journal: “Malav-san is getting more confrontational than defensive . . . we have no choice but to fire him.” At that point, Une blamed the problems on poor management and noted a “difference in attitude towards quality.” He pondered whether the real problem wasn’t “Malav-san’s secrecy.”
On May 8, Une finally told Malvinder that he could not continue as CEO. Within two weeks, the Indian CEO resigned. Months later, Une was still in the dark. But from his new vantage point, he had begun to see a different side of Malvinder. Une noted in his journal, in a tone as mild-mannered as ever, “Although Malav-san seemed like thinking about the company, he actually prioritized his family profits as a private shop owner after all. I was disappointed.” Even after Singh’s departure, executives remained loyal to him and continued to conceal the SAR. Lavesh Samtani, who had replaced Deshmukh as the company’s general counsel, instructed Hamel that an upcoming presentation to Une should not delve into the facts of the case and, specifically, should not mention the SAR.
On November 17, 2009, federal prosecutors invited Ranbaxy’s attorneys and outside lawyers, including Hamel, to Justice Department headquarters in D.C. It was time for the prosecutors to show their hand. They gave a hard-hitting presentation, emphasizing that the misconduct at Ranbaxy had spanned years and involved all of the company’s facilities and all of its drugs. In the sixty-seven-slide PowerPoint they displayed, the prosecutors tracked dozens of false statements. They showed that the company’s top executives had known about, and were complicit in, the fraud. The prosecutors made clear that, in their view, any unexplained misstatements in Ranbaxy’s FDA filings were likely instances of criminal conduct rather than innocent mistakes or oversights. Their evidence included excerpts from the SAR. At that, the Venable lawyers rose from their chairs. One walked closer to the slide presentation, as though to see if the image of the SAR was real.
It was a devastating meeting. But to Hamel, it had one silver lining: he could finally right the profound wrong done to Tsutomu Une. He asked Justice Department officials for permission to share their presentation with Ranbaxy’s board, which Dr. Une chaired. They agreed. Two days later, at a conference room in Venable’s New York office, Hamel showed Une the Justice Department presentation. The microbiologist was stunned. Suddenly, the bewildering problems he’d been confronting for more than a year made sense. The next day, in an email to a company consultant, Une tried to piece all the information together. He wrote that there had been a “whisperer” from inside the company, who’d taken documents that had been presented to board members and given them to the U.S. government. Brian Tempest and Malvinder Singh had tried to conceal “all the documents relating to the issues. This is the reason why the cases could be criminal,” Une wrote, and why the “FDA insists the issues could be caused by corporate culture.”
Finally, Une understood the true nature of the company that Daiichi Sankyo had bought. He felt driven by the need to make his company whole for the disastrous purchase he’d championed. Within three years, Une’s carefully written journal would become Exhibit A when Une and a team of lawyers brought their claim of Malvinder’s deception before an international court of arbitration in Singapore.