April 8, 09

NEWS / FEN-PHEN LAWYERS CONVICTED OF WIRE FRAUD AND WIRE FRAUD CONSPIRACY

FRANKFORT, KY—Two Fen-Phen Lawyers accused of hoarding $94 million from their clients were convicted today by a jury in U.S. District Court in Frankfort, Ky. on eight counts of wire fraud and one count of conspiracy to commit to wire fraud. The jury rendered the verdict after approximately a day and a half of deliberation. Gallion and Cunningham face a maximum prison sentence of 20 years for the conspiracy count and 20 years for each wire fraud count.

Evidence and testimony at trial established that William J. Gallion and Shirley A. Cunningham, Jr. purposely did not tell their clients the total amount of the 2001 Fen-Phen $200 million settlement. In addition, they fraudulently convinced each plaintiff to accept a low value for their claim by deliberately withholding facts of the settlement and suggesting the possibility of imprisonment to plaintiffs who revealed their individual settlement amount to others.

Evidence at trial proved that Gallion and Cunningham wired millions of dollars from an escrow account to their personal and business accounts.

“These defendants got caught with their hand in the cookie jar,” said Assistant United States Attorney E.J. Walbourn during closing arguments. “The linch pin of the United States’ prosecution are the misrepresentations, false truths and downright deceit by both defendants.”

Cincinnati class action expert Stanley Chesley, who negotiated the 2001 settlement, testified that each of the 440 plaintiffs should have been told the total amount of the settlement and received full disclosure of the facts before agreeing to a sum of money in the settlement of their claims.

He further testified that Gallion and Cunningham should not have taken any fees without first having filed a motion with the court and setting up a hearing during which the plaintiffs could object to the settlement amount. He additionally testified that it was wrong for the defendants to have placed $20 million into a trust fund, and that this money should have been paid to the plaintiffs in subsequent distributions. “These clients deserved what the law allowed and they didn’t receive it,” said Walbourn during the closing arguments.

In February 2002, the Kentucky Bar Association Inquiry Commission began an investigation concerning the manner in which the civil settlement had been handled. The bar association requested a subpoena for the escrow account, as well as for the records of Gallion and Cunningham relating to finances.

The evidence revealed that after the request was made, money that had already been diverted to the defendants’ personal accounts was used to pay a second distribution to the plaintiffs. This second distribution was still far below the amount their clients were entitled to receive under the terms of the settlement agreement. During this second distribution, the plaintiffs were told that if there were any additional money left over, they may seek to have those additional amounts donated to a trust for charity. The victims who testified all stated they believed that the amount going to charity, if any, would be minuscule.

Thereafter, the lawyers sought sealed orders from the court authorizing the establishment of the Kentucky Fund For Healthy Living and invested approximately $20 million from the settlement into the trust without the knowledge or consent of their clients. Likewise, without the knowledge and consent of their clients, they sought further sealed orders appointing themselves as paid directors of the trust with each defendant receiving approximately $5,300 a month during the life of the trust.

In July of 1998, Gallion, Cunningham and another attorney Melbourne Mills filed a civil action in Boone County Circuit Court on behalf of approximately 440 plaintiffs they represented against American Home Products (AHP), Bariatrics, Inc., and Dr. Rex Duff. As part of their representation, all three entered into contractual fee agreements with each of their clients. Gallion agreed to a fee of 33 percent of the total sum recovered by his clients before expenses; Cunningham agreed to 33 and one-third percent of the total sum recovered by his clients before expenses and Mills agreed to a fee of no more than 30 percent of his clients’ net recovery after expenses. The case was subsequently certified as a class action, and in May 2001, the case was settled through mediation. AHP agreed to pay the 440 plaintiffs more than $200 million.

James A. Zerhusen, United States Attorney for the Eastern District of Kentucky and Timothy D. Cox, Special Agent in Charge of the Federal Bureau of Investigation, jointly made the announcement today after the jury returned the verdict.