Great success seemed unlikely in this case. To begin with, suicide malpractice suits are very difficult to win. Juries understandably want to hold people responsible for their behavior when they kill themselves. I was going to testify that a single dose of Prozac 30 mg was the main cause of his suicide, a conclusion that other experts would vigorously challenge.
In addition, the case was in an area of the country where juries are conservative about giving monetary awards to plaintiffs. It was in the U.S. District Court for middle Pennsylvania in the city of Scranton.
Juries also tend to look askance at claims made on behalf of people in jail. Mr. Mumun Barbaros, the deceased victim, was in his fourth day of incarceration, awaiting release on bail. The judge did not allow the jury to know the nature of his alleged crime or the charges against him, and I was not permitted to comment on them. If allowed, I would have testified that Paxil-induced disinhibition drove him to vandalize the property of a man in a competing business.
Some people are also less sympathetic to naturalized citizens with strong ties to their countries of origin. Mr. Barbaros was a Bulgarian who became a citizen, but his wife and children spent only part of the year with him and he sent back large amounts of his earnings from his tavern to his extended family back home.
Finally, the case had scientific complexities that the jury had to understand.
The defendants were the independent healthcare provider to the jail, PrimeCare, and several of its personnel or contractors assigned to the jail. Mr. Barbaros had been taking Paxil for anxiety for many years, along with the sedating antidepressant trazodone to help him sleep.
At the time of his arrest, Mr. Barbaros reported that he needed his medication. Due to a series of errors upon the part of the healthcare personnel, his request for medication went unfilled for four days. By the second and third day, Mr. Barbaros develop headaches and hypertension, and his chronic stomach problem worsened, but no one attributed these symptoms to withdrawal. However, his intake evaluation and contacts with healthcare providers documented an absence of suicidal thoughts and revealed no great distress.
When the staff finally confirmed Mr. Barbaros’ medications, a licensed practical nurse (LPN) from the jail phoned the psychiatrist on call and asked him to prescribe the Paxil 30 mg and trazodone 100 mg. The LPN did not offer the doctor any information about Mr. Barbaros, such as his age, the reason he was taking the medications, how long he had been taking them, and how long he had been without them in jail. The psychiatrist, in turn, did not ask the nurse any questions, but simply authorized the drugs.
I testified that the psychiatrist’s actions were worse than practicing medicine negligently—he was not practicing medicine at all. He was more like a vending machine. I further testified that this was callous disregard, especially since he admitted to knowing that the drug had dangers associated with it, including suicide, and yet asked no information about the patient, did not come in to see him, and ordered no special supervision.
Following his first morning dose of the Paxil, Mr. Barbaros was seen for a routine evaluation by a staff psychologist in the mid-afternoon. At this point, Mr. Barbaros was drastically changed. He was no longer a man who conversed easily and showed no signs of significant stress, anxiety or depression. According to the psychologist’s deposition, Mr. Barbaros now looked extremely anxious and like a “cornered rat,” spoke very little, made poor eye contact, and looked hunched over and withdrawn. In the psychologist’s scantily written report, his only diagnosis was “rule out depression,” an entirely new diagnosis for Mr. Barbaros.
I attributed these drastic changes in Mr. Barbaros’ condition to the impact of the large dose of Paxil. The psychologist had not checked to see what medications Mr. Barbaros was taking. He did not check the medical record and therefore did not know that his current severely anxious and withdrawn state was entirely new for him during his incarceration. He did not ask his patient if he was suicidal.
In my direct examination, I testified that restarting the patient on his regular dose of Paxil 30 mg, despite a hiatus of at least four days without the medication, was a direct cause of the suicide later on the same day. Restarting him on Paxil 30 mg, when most of the drug was out of his system, caused akathisia (agitation with hyperactivity) and suicide. I also found that the doctor and the psychologist were negligent in several other ways, including their failure to evaluate the patient and to order careful monitoring.
I further explained that Paxil (paroxetine) is a selective serotonin reuptake inhibitor (SSRI) antidepressant. All antidepressants can cause suicidal and homicidal behavior, especially those like the SSRIs that routinely cause stimulation or activation, including akathisia, agitation, insomnia, disinhibition, emotional lability, hypomania and mania, and a general worsening of the patient’s condition. Of all the antidepressants, Paxil was the only one to show a statistically significant association with suicide in depressed adults in the short and deeply flawed clinical trials used for FDA approval of the drug.
One of the more dramatic moments in my testimony came on the first series of questions during cross-examination. When I began reviewing the case, I was asked to focus on Mr. Barbaros’ medical record going back approximately six years to the time when his primary care doctor had started him on Paxil 10 mg, apparently without difficulty, and then raised it gradually to 20 mg and then 30 mg. To be thorough, I examined all the remaining extensive medical records and came upon something remarkable buried within them that had previously escaped attention.
The day after his first dose of Paxil 10 mg, Mr. Barbaros became so anxious that he thought he was having a heart attack and sought immediate help at a local medical clinic separate from his primary care physician who prescribed the Paxil. That clinic referred him to a cardiologist on an emergency basis who evaluated him and found no physical disorder. These doctors treated Mr. Barbaros’ anxiety with prescriptions for a benzodiazepine tranquilizer.
Mr. Barbaros had experienced a very severe anxiety reaction to his first dose of Paxil, but it apparently never entered his mind that Paxil was causing it. From the medical record, it looks like he never told the emergency clinic or the cardiologist he had recently started taking Paxil and he never told his primary care doctor, when he returned for follow up later on, that he had been so anxious that he went to a cardiologist and received sedative tranquilizers. It is very common for individuals to fail to realize that their acute psychiatric emergencies are being caused by their psychiatric medication. I call this phenomenon “medication spellbinding” or intoxication anosognosia.
As a medical expert in a product liability case against GlaxoSmithKline, the manufacturer of Paxil, I had discovered from the company’s secret files that Paxil frequently caused severe psychiatric adverse reactions during the first few doses. I had published an article about this in the hope of alerting people to the risk. This earlier work of mine enhanced the credibility of my discussion.
So… when I was asked at the beginning of cross-examination to explain why Mr. Barbaros would have such a bad reaction to being restarted on Paxil since he never had a bad reaction to being started many years earlier, I had an unexpected answer. I could reply and document from the medical records that, in fact, he had a drastic psychiatric reaction to the original 10 mg dose but no one recognized that it was related to the Paxil. The defense attorney was so flummoxed by my revelation that he never even asked to see the relevant medical records. The cross-examination then went on for an unexpectedly long time, requiring me to come back a second day. The defense probably was hoping that the jury would forget the revelation I had disclosed in the first few minutes.
The jury not only found that PrimeCare and several of its practitioners and staff had been negligent, they further concluded that the company and most of the individual defendants acted with deliberate indifference to Mr. Barbaros’ medical needs.
Despite a vigorous challenge by the defendants’ attorneys, the judge qualified me as an expert in psychiatry, psychopharmacology and the specific drug Paxil. In the trial, other experts testified for the plaintiffs concerning the nursing care and administrative policies of the healthcare provider, as well as the violent method of Mr. Barbaros’ death by gagging himself.
The jury award included $2.8 million for negligence, $1.06 million for federal deliberate indifference and $8 million for punitive damages. The case is Ponzini et al. v. Monroe County et al., case number 3:11-cv-00413, in the U.S. District Court for the Middle District of Pennsylvania. The attorney for the plaintiff was Brian Chacker of Philadelphia. He worked extraordinarily hard and with great diligence on the case.
I do believe that the success of this case reflects greater awareness within the public and the judicial system concerning the dangers of psychiatric drugs.
SHANGHAI — Peter Humphrey was in the bathroom of his Shanghai apartment when the police kicked the door off its hinges and knocked him to the ground. Nearly two dozen officers stormed his home. They confiscated files, laptops and hard drives related to his work as a corporate investigator.
Mr. Humphrey and his wife, Yu Yingzeng, were taken to Building 803, a notoriously bleak criminal investigation center normally reserved for human smugglers, drug traffickers and political activists. Sleep-deprived and hungry, he was transferred later that day to a detention house, placed in a cage and strapped to an iron chair. Outside, three officers sat on a podium and demanded answers.
Mr. Humphrey knew the reason for the harsh interrogation. He and Ms. Yu had been working for GlaxoSmithKline, the British pharmaceutical maker under investigation in China for fraud and bribery.
The Glaxo case, which resulted in record penalties of nearly $500 million and a string of guilty pleas by executives, upended the power dynamic in China, unveiling an increasingly assertive government determined to tighten its grip over multinationals. In the three years since the arrests, the Chinese government, under President Xi Jinping, has unleashed the full force of the country’s authoritarian system, as part of a broader agenda of economic nationalism.
Driven by the quest for profits, many multinationals pushed the limits in China, lulled into a sense of complacency by lax officials who eagerly welcomed overseas money. Glaxo took it to the extreme, allowing corruption to fester.
When bribery accusations surfaced, the company followed the old playbook, missing the seismic changes reshaping the Chinese market. Rather than fess up, Glaxo tried to play down the issues and discredit its accusers — figuring officials wouldn’t pay attention.
Along the way, there were bribes of iPads, a mysterious sex tape and the corporate investigator, who gave his operations secret code names. The company’s missteps are laid bare in emails, confidential corporate documents and other evidence obtained by The New York Times, as well as in interviews with dozens of executives, regulators and lawyers involved in the case.
The aftershocks of the Glaxo case are still rippling through China. The authorities have unleashed a wave of investigations, putting global companies on the defensive. The government has intensified its scrutiny of Microsoft on antitrust matters this year, demanding more details about its business in China. And just two weeks ago, the authorities detained a group of China-based employees, including several Australian citizens, working for the Australian casino operator Crown Resorts, on suspicion of gambling-related crimes.
Companies are racing to find new strategies and avoid getting locked out of China, the world’s second-largest economy after the United States. Disney and Qualcomm are currying favor with Chinese leaders. Apple redid its taxes in China after getting fined. Some multinationals are training employees in how to deal with raids.
The crackdown has prompted a complete rethinking for Glaxo — and for much of the pharmaceutical industry. To appease the government, drug makers have promised to lower prices and overhaul sales practices.
“For a long time, there’d been this policy of going easy on foreign enterprises,” said Jerome A. Cohen, a longtime legal adviser to Western companies. “The government didn’t want to cause embarrassment or give outsiders the impression that China is plagued with corruption. But they’re not thinking like that anymore.”
The Glaxo case was fueled by missed clues, poor communication and a willful avoidance of the facts. For more than a year, the drug maker brushed aside repeated warnings from a whistle-blower about systemic fraud and corruption in its China operations.
The company’s internal controls were not robust enough to prevent the fraud, or even to find it. Internally, the whistle-blower allegations were dismissed as a “smear campaign,” according to a confidential company report obtained by The Times.
Glaxo just wanted to make its problems go away. It offered bribes to regulators. It retaliated against the suspected whistle-blower. It hired Mr. Humphrey and Ms. Yu to dig into the woman’s background, family and government ties, as a way to discredit her. And Glaxo may even have gone after the wrong person, documents and emails obtained by The Times suggest.
None of it mattered. The allegations were true.
Prosecutors charged the global drug giant with giving kickbacks to doctors and hospital workers who prescribed its medicines. In 2014 Glaxo paid a nearly $500 million fine, at the time the largest ever in China for a multinational. Five senior executives in China pleaded guilty, including the head of Glaxo’s Chinese operations, a British national, in a rare prosecution of a Western executive. With Glaxo embroiled in scandal, sales plummeted in China, the company’s fastest-growing market.
Glaxo has declined multiple requests for comment, referring instead to earlier statements. Glaxo “fully accepts the facts and evidence of the investigation, and the verdict of the Chinese judicial authorities,” one statement read. “GSK P.L.C. sincerely apologizes to the Chinese patients, doctors and hospitals, and to the Chinese government and the Chinese people.”
Mr. Humphrey and Ms. Yu, both in their late 50s at the time of their arrests, were punished too. The couple spent two years in prison for illegally obtaining government records on individuals.
Mr. Humphrey was crowded into a cell with a dozen other inmates. There were no beds or other furniture, just an open toilet and a neon light overhead. During his incarceration, Mr. Humphrey said, he suffered back pain, a hernia and a prostate problem that was later diagnosed as cancer.
“I was in a state of complete shock and breakdown,” said Mr. Humphrey, who was released along with his wife in July 2015. “I was physically broken down and mentally blown away. I didn’t sleep for 45 days.”
A Whistle-Blower Emerges
An anonymous 5,200-word email in January 2013 to the Glaxo board laid out a detailed map to a fraud in the Chinese operations.
Written in perfect English, the email was organized like a corporate memo. Under the header “Conference Trip Vacations for Doctors,” the whistle-blower wrote that medical professionals received all-expenses-paid trips under the guise of attending international conferences. The company covered the costs of airline tickets and hotel rooms, and handed out cash for meals and sightseeing excursions.
In a section labeled “GSK Falsified Its Books and Records to Conceal Its Illegal Marketing Practices in China,” the email explained how Glaxo was pitching drugs for unapproved uses. As an example, the whistle-blower said the drug Lamictal had been aggressively promoted as a treatment for bipolar disorder, even though it had been approved in China only for epilepsy.
Glaxo “almost killed one patient by illegally marketing its drug Lamictal,” said the email, which was obtained by The Times. “GSK China bought the patient’s silence for $9,000.”
The email was one of nearly two dozen that the whistle-blower sent over the course of 17 months to Chinese regulators, Glaxo executives and the company’s auditor, PricewaterhouseCoopers.
When the authorities pressed Glaxo, the company was dismissive. It failed to properly investigate the allegations. It didn’t beef up its internal controls. And it didn’t change its marketing practices.
The decision was calculated. In the decades since China began opening its economy, most multinationals had avoided scrutiny over bribery. China needed overseas companies to help develop its economy, by setting up manufacturing operations and creating jobs. The authorities were reluctant to jeopardize investment, so they took a softer approach to enforcement.
When companies did run into trouble, fines were tiny. The rare cases tended to be colored by politics. Seven years ago, the Chinese authorities detained executives from the global mining giant Rio Tinto on suspicion of stealing state secrets. The charges were eventually downgraded to bribery, and the company avoided punishment.
By the time Glaxo’s fraud bubbled to the surface, China had changed.
Over the last decade, China has emerged as an economic powerhouse, but it took off even more as the rest of the world slowed after the financial crisis. That gave China the upper hand with overseas companies, which were increasingly dependent on profits from the country’s growing consumer base.
The economic might coincided with the Communist Party’s increasingly nationalistic stance. The authorities in China, already undertaking a severe crackdown on Chinese companies, wanted to show that, like American regulators, they could also penalize and sanction global companies.
And it was no secret that big drug makers were violating the law in China.
Years earlier, the consulting firm Deloitte warned about rampant corruption in China’s pharmaceutical market. As Deloitte found, doctors and health care workers were poorly compensated, so they could easily be induced to write more prescriptions with offers of cash, gifts, vacations and other benefits. Big drug makers, eager for growth, willingly obliged.
“The remarkable thing is that China is a more hospitable environment to this type of corruption, because it’s a market where doctors and hospitals are heavily reliant on drug sales,” said Dali Yang, who teaches at the University of Chicago and has studied the industry. “They were like fish swimming in water.”
American investigators had punished several major drug companies for such behavior abroad. In 2012, Eli Lilly agreed to pay $29 million, and Pfizer $45 million, to settle allegations that included employees’ bribing doctors in China. In settling the cases, neither company admitted or denied the allegations.
That summer, Glaxo agreed to pay $3 billion in fines and pleaded guilty to criminal charges in the United States for marketing antidepressants for unapproved uses, failing to report safety data on a diabetes drug and paying kickbacks. The case was built off tips from several whistle-blowers.
After that, Glaxo’s chief executive, Andrew Witty, pledged, “We’re determined this is never going to happen again.”
But it did — in China.
In early 2013, Glaxo realized it couldn’t ignore the problems. The authorities were asking questions. The whistle-blower continued to send emails.
So the company tried another common gambit in China: bribing officials.
The company set up a special “crisis management” team in China and began offering money and gifts to regulators.
That strategy had worked in the past. A company, often using a middleman, would try to soothe officials and regulators, offering gifts and favors.
One government agency had received multiple emails from the whistle-blower, and Glaxo targeted multiple branches of the agency, according to state media reports. One executive tried to cozy up to a Shanghai investigator with an iPad and a dinner totaling $1,200, another Glaxo employee said in a statement to the police. When that executive asked for money to bribe the Beijing branch, Mark Reilly, the head of the company’s Chinese operations, gave the “go ahead.”
Another executive with Glaxo’s Chinese operations bribed regulators to focus on “unequal competition,” rather than a more punitive investigation into “commercial bribery.” The goal, that executive admitted in a statement, was to limit any potential fine to about $50,000. It didn’t work.
As pressure mounted, the case took a bizarre turn, setting Glaxo on a collision course with the government.
In March 2013, Glaxo’s chief executive and five other senior executives in the company’s London headquarters received an anonymous email with a media file. In it, a grainy video showed Mr. Reilly, the executive in China, engaged in a sexual act with a young Chinese woman.
The attached email alleged that Mr. Reilly, a British national who had helped manage the company’s China operation for four years, was complicit in a bribery scheme tied to a travel agency called China Comfort Travel, or C.C.T. According to the email, Glaxo funneled money through the travel agency to pay off doctors. The travel agency also supplied Mr. Reilly with women, as a way to secure that business.
“In order to acquire more business, C.C.T. bribed Mark Reilly, the general manager of GSK (China) with sex,” the email said. “Mark Reilly accepted this bribery and made C.C.T. get the maximized benefits in return.”
Glaxo later discovered that the video had been shot clandestinely, in the bedroom of Mr. Reilly’s apartment in Shanghai. Analysts working for the company said it had been edited to disguise the location.
Glaxo executives in London were shocked. They deemed the video a serious breach of privacy, involving a possible break-in at the home of a senior executive in China. Mr. Reilly moved to a more secure residence.
Like many global companies, Glaxo has a code of conduct that encourages employees to report fraud or wrongdoing without fear of retaliation by the company. In many countries, including China, the rights of whistle-blowers are protected by law.
Glaxo didn’t seem to care.
By the time the video surfaced, Glaxo already had its suspicions about the identity of the whistle-blower. Months earlier, the company had fired Vivian Shi, a 47-year-old executive handling government affairs in Glaxo’s Shanghai office. The official reason for Ms. Shi’s firing was falsifying travel expenses. In fact, she was dismissed because the company believed she was the whistle-blower, according to confidential corporate documents obtained by The Times.
Ms. Shi did not return multiple calls for comment.
After receiving the video, Glaxo took more aggressive action, seeking to discredit Ms. Shi, who had already left the company.
At that point, in the spring of 2013, the company turned to Mr. Humphrey, the investigator. He ran ChinaWhys, a small risk consultancy firm that advised global companies like Dell and Dow Chemical.
His firm was engaged in what he called “discreet investigations,” helping multinationals cope with difficult situations like counterfeiting and embezzlement. Short in stature, with a shock of white hair, Mr. Humphrey portrayed himself as a kind of modern-day Sherlock Holmes.
“He likes a good adventure and likes solving cases,” said his friend Stuart Lindley, who runs a financial services company in China. “But he was definitely aware that some of that stuff was risky.”
In April 2013, Mr. Reilly met with Mr. Humphrey at Glaxo’s glass office tower near People’s Square in central Shanghai. According to meeting notes obtained by The Times, they discussed the emails, the sex video and Ms. Shi, the suspected whistle-blower. Mr. Reilly told the investigator that she held a grudge against Glaxo.
At the meeting, Mr. Reilly asked the investigator to look into the break-in at his apartment. But he made clear that he also wanted to assess what power and influence Ms. Shi might have with the government.
Legal experts say Mr. Reilly should not have been put in charge.
“The executive so accused has an obvious conflict of interest in overseeing such an investigation,” said John Coates, a Harvard Law School professor. “Even if the executive were entirely innocent of the whistle-blower’s charge, giving that same executive the role of investigating the whistle-blower smacks of retaliation.”
Efforts to reach Mr. Reilly, who has since left the company, were unsuccessful.
Using the code name Project Scorpion, Mr. Humphrey and his staff spent the next six weeks working undercover, gathering evidence. They visited Lanson Place, the upscale apartment complex where Mr. Reilly lived when the sex tape was made. They created a dossier on the suspected whistle-blower, searching for motives and ties to high-ranking officials or regulators. They interviewed former co-workers, scrutinized her résumé and scoured the web for information about her father, a former health official.
Glaxo may have crossed a line in this regard, putting the company more sharply in the government’s sights.
As part of the investigation, Mr. Humphrey turned to a Chinese detective to acquire a copy of Ms. Shi’s household registration record, or hukou. The official document contained information about her husband and daughter. The authorities had warned private detectives about acquiring confidential government documents.
“This type of household information is supposed to be private,” said John Huang, a former government official who is now managing partner at McDermott, Will & Emery in Shanghai. “But people were buying and selling it.”
Glaxo got little payoff from the investigation.
On June 6, 2013, Mr. Humphrey delivered a 39-page report to Glaxo that said Ms. Shi was probably the whistle-blower and even had a “track record of staging similar attacks” at a previous job. But the report included no evidence linking her to the emails or the sex video, according to a draft obtained by The Times.
Glaxo’s strategy of bribery and discrediting ultimately failed.
With the Chinese government in the midst of a crackdown on corruption, the police carried out a series of raids on June 27, 2013. They seized files and laptops from multiple Glaxo offices and interrogated dozens of employees. In Shanghai, four senior executives were detained. Investigators also raided the offices of several travel agencies that had worked closely with Glaxo, including China Comfort Travel.
A week later, the police stormed Mr. Humphrey’s apartment in Shanghai. He and his wife were charged with violating privacy laws.
Mr. Humphrey declined to comment on the specifics of the Glaxo case. His son defended his work, saying Glaxo engaged him “under false pretenses.” “My father is an honorable and law-abiding man,” said the son, Harvard Humphrey.
When prosecutors announced the case against Glaxo in July 2013, several weeks after arrests began, their allegations closely mirrored those of the whistle-blower. They described an elaborate scheme to bribe doctors and workers at government-owned hospitals using cash that had been funneled through a network of 700 travel agencies and consulting firms.
“It’s like a criminal organization: There’s always a boss, and in this case GSK is the boss,” said Gao Feng, one of the lead investigators.
Glaxo said little about the developments until July 15, when several high-ranking executives confessed from prison on state-run television. After that, the company capitulated, issuing a blanket statement for its misdeeds: “These allegations are shameful and we regret this has occurred.”
Cleaning Up Corruption
Dressed in a dark suit and a blue tie, Mr. Reilly, the Glaxo executive, was led in handcuffs into a small courtroom in the city of Changsha, in central China, in September 2014. With security guards behind him, he stood alongside four other senior Glaxo executives as a judge read the charges.
“The defendant company GSKCI is guilty of bribing nongovernment personnel and will be fined 3 billion yuan,” the judge, Wu Jixiang, said sternly, referring to Glaxo’s Chinese name. The company and the executives, having confessed, were given relatively light sentences, the court said.
Mark Reilly was sentenced to three years in prison and ordered to be expelled from China.
After handing down that sentence, the judge turned to Mr. Reilly.
“Do you obey the court’s verdict? Do you appeal?” he asked.
Mr. Reilly said that he would not challenge the verdict. Because he was swiftly deported, he will not serve prison time in China.
Glaxo is still trying to clean up the mess.
In China, Glaxo has promised to overhaul its operations and has put in place stricter compliance procedures. The company has changed the way its sales force is compensated and has eliminated the use of outside travel agencies.
Glaxo has also tightened oversight of expenses and cash advances, areas central to the case. Employees must now send in photographs of the guests and food, to verify that the meetings took place.
And in August 2015, Glaxo tried to make amends by rehiring Ms. Shi, an acknowledgment that the company had erred in firing an employee suspected of being a whistle-blower.
But the decision also hinted at a more troubling admission — that Glaxo had targeted the wrong person. There are indications that Ms. Shi was not the whistle-blower, and that there may have been more than one person.
The emails sent to regulators were written in fluent English and came mostly from a Gmail account. The email with the sex video came from a local Chinese account and was written in poor English. The only similarity was the anonymity.
The Times sent emails to both accounts and got a response from just one, the person who had written the detailed emails to the Chinese authorities and Glaxo. “You have reached who you are looking for,” the person replied.
In a series of exchanges, the author denied being Ms. Shi, acting in concert with her or sending the video. The person said Glaxo had erroneously blamed Ms. Shi for the emails and never found the actual whistle-blower.
The Times was unable to verify the identity of the person, who described working in Shanghai but declined to come forward for fear of retribution.
“I didn’t reveal to GSK personnel that I was the whistle-blower because doing so would have placed me in potential physical jeopardy,” the whistle-blower wrote in an email to The Times. “You understand that criminals — you know that they were convicted later in Chinese courts — were in charge of GSK China at that time, and I truly believe that they would have harmed me in some fashion had they discovered my identity. ”
After a whistle-blower working for one of the world’s biggest pharmaceutical companies began sending anonymous tips about fraud and corruption inside its operation in China, authorities there moved in. They arrested top executives and corporate detectives the company had hired to track down the whistle-blower. Here is how the events transpired.
Credit Aly Song/Reuters
December 2011 A self-described whistle-blower working inside Glaxo sends an email to Chinese regulators, detailing fraud and corruption in the pharmaceutical maker’s Chinese operations. It is the first of about two dozen emails sent over a 17-month period.
April 2012 Glaxo executives in China begin hearing that a whistle-blower has been sending documents to Chinese regulators claiming widespread corruption at the company.
July 2012 The company pleads guilty in the United States to criminal charges for improper drug marketing and kickbacks to doctors. The company’s chief executive, Sir Andrew Witty, pledges that it “is never going to happen again.”
December 2012 Vivian Shi, the head of government affairs for Glaxo in China, is fired, supposedly for falsifying travel expenses. But the real reason, according to internal documents, is that Ms. Shi is suspected of being the whistle-blower.
January 2013 The whistle-blower sends a 5,200-word email to the Glaxo chairman, senior executives and the company’s outside auditor. The email, like the previous ones to authorities, describes a systemic fraud and bribery scheme. The allegations are dismissed by the company as a “smear campaign.”
“This illegality almost killed a person,” a whistle-blower wrote to Chinese regulators in January 2013.
March 2013 Top Glaxo executives in London receive another whistle-blower email, this time showing Mark Reilly, the head of the company’s operations in China, engaged in a sexual act in his apartment.
April 2013 Glaxo hires ChinaWhys, a private consulting firm run by Peter Humphrey and his wife, Yu Yingzeng, to investigate the suspected whistle-blower and a break-in at Mr. Reilly’s home. The investigation is code-named “Project Scorpion.”
June 2013 Mr. Humphrey presents the findings of his investigation to Glaxo. Although his report offers no evidence connecting Ms. Shi to the emails, he notes the suspected whistle-blower has a “track record of staging similar attacks.”
June 2013 The police carry out a series of coordinated raids on Glaxo offices throughout China, detaining four executives, including the country’s chief legal officer. Several travel agencies working closely with Glaxo are also raided.
July 15, 2013 At a news conference in Beijing, prosecutors accuse senior executives at Glaxo’s Chinese operations of running an elaborate scheme to bribe doctors and hospital workers, describing it as an “organized crime operation.”
July 16, 2013 Four Chinese executives at Glaxo confess on state television to the bribery and fraud scheme.
August 2014Mr. Humphrey and Ms. Yu are convicted of illegally obtaining government records about individuals during their corporate investigations, a charge they denied. They each served two years in prison.
Sept. 19, 2014 At a one-day trial held in secret, Mr. Reilly, the head of Glaxo’s Chinese operations, and other company executives plead guilty to fraud and bribery. Glaxo agrees to pay a $500 million fine. Mr. Reilly is deported from China.
The U.K. pharmaceutical giant GlaxoSmithKline has resolved an outstanding FCPA matter for the conduct of its China subsidiary, GSK-China that settled an SEC investigation for a fine of $20 million, with no profit disgorgement—quite a favorable move for the company. Even more amazingly, the company received a declination from the Justice Department, even though it was under the equivalent of a Deferred Prosecution Agreement, called a Corporate Integrity Agreement, for the actions unrelated to its FCPA violations in marketing off-labeled marketed products.
Of course these resolutions did not stand alone as the company had been sanctioned by the Chinese government with a fine of approximately $490 million back in 2014 for the actions of GSK-China. Company employees were criminally convicted and non-Chinese senior executives of the China business unit, who were convicted were deported from China. GSK’s sales in China went in the tank and continue to suffer through this date.
Perhaps the U.S. authorities felt the company had suffered enough. However, in this age of increasing international enforcement, it may well be the SEC and Justice Department missed an opportunity to demonstrate how they would give credit for anti-corruption prosecutions, done by other governments, under local anti-corruption laws; such as was done by Chinese authorities with GSK-China. U.S. authorities could have not only cited to the successful use of domestic Chinese laws as an example in the international fight against bribery and corruption but also specifically stated that how the fine and penalty paid by GSK-China was considered in the calculation of the fine by U.S. regulators.
Such an approach would have emphasized the U.S. government’s favorable outlook for greater international sanctions against corruption, as well as shown companies that they would not be whip-sawed by regulators across the globe for the same conduct. It could have been one of the most public examples of how the U.S. government viewed the international fight against corruption.
The high-profile fund manager tells Sky News a “fresh pair of eyes” is needed to replace Sir Andrew Witty at GSK.
10:58, UK, Thursday 17March 2016
Sir Andrew Witty poses after being honoured with a knighthood
By Mark Kleinman, City Editor
Britain’s biggest drugs-maker, GlaxoSmithKline (GSK), has been told to ignore internal candidates in its search for a new boss as shareholders intensify demands for a radical overhaul of the company.
Speaking exclusively to Sky News, Neil Woodford, the City’ s best-known fund manager, said that GSK needed “a fresh pair of eyes” to replace Sir Andrew Witty, who will step down next year.
“I have a strong preference for an external candidate,” the head of investments at Woodford Investment Management said on Thursday.
Mr Woodford’s demands will put pressure on Sir Philip Hampton, GSK’s new chairman, to appoint an executive from elsewhere in the pharmaceuticals industry to succeed Sir Andrew.
That would come as a blow to possible internal candidates such as Emma Walmsley, who runs GSK’s consumer products division, and Abbas Hussain, president of its global pharmaceuticals unit.
Sky News revealed last autumn that Mr Woodford was seeking a break-up of the £69bn company, which owns brands such as Nicorette and Horlicks.
He believes the group would be far more valuable if it separated its HIV business ViiV, its consumer healthcare division and Stiefel, its dermatology division, from its core medicines and vaccines arm.
The City has grown frustrated at GSK’s lacklustre share price performance, with the stock down about 10% over the last 12 months as investors wait to see whether a pipeline of promising new products will deliver.
Under Sir Andrew, its chief executive since 2008, GSK has signalled a shift away from highly priced prescription drugs in favour of vaccines and consumer products.
Analysts at Deutsche Bank said the announcement about Sir Andrew’s retirement was unlikely to signal material strategic changes at GSK.
GlaxoSmithKline CEO Andrew Witty to Retire in March 2017
March 17, 2016 — 7:12 AM GMT
Updated on March 17, 2016 — 12:10 PM GMT
Board will search for CEO candidate inside, outside drugmaker
Chairman Hampton also plans `board refreshment’ this year
GlaxoSmithKline Plc Chairman Phil Hampton began an overhaul of the biggest U.K. drugmaker by launching a search for Chief Executive Officer Andrew Witty’s successor and replacing a third of the board as he seeks to pacify some disgruntled investors.
Witty, 51, will retire next March, after almost a decade at the helm, the London-based company said in a statement on Thursday. Glaxo also plans what Hampton termed a “board refreshment” as directors Deryck Maughan, Stephanie Burns, Daniel Podolsky and Hans Wijers won’t stand for re-election at the annual meeting in May.
Photographer: Simon Dawson/Bloomberg
Witty, once hailed as one of the pharmaceutical industry’s most visionary managers, has faced criticism for Glaxo’s lagging share performance, sluggish sales and a pipeline lacking promising medicines. A bribery scandal in China that led to a $489 million fine last year also tarnished his image, which he had built with initiatives to develop the world’s first malaria vaccine and reform the way medicines are marketed to doctors.
“Glaxo needs a shakeup at the top,” said Gareth Powell, a portfolio manager at Polar Capital LLP in London whose holdings include Glaxo shares. “There’s a lack of truly innovative products, and that’s what they need to sort out.”
Last year, Witty oversaw the biggest reorganization since the merger that created Glaxo 15 years ago. He sold the company’s cancer drugs to Novartis AG in exchange for the Swiss firm’s vaccines business and cash. The companies also formed a joint venture, controlled by Glaxo, to sell consumer health products.
Glaxo shares fell 1.3 percent to 1,394 pence at 12:07 p.m. in London trading. The stock has returned an average of 10 percent a year over the past five years, compared with a 17 percent average annual return for the Bloomberg Europe Pharmaceutical Index.
“By next year, I will have been CEO for nearly ten years and I believe this will be the right time for a new leader to take over,” Witty said in the statement. He began leading Britain’s largest drugmaker in 2008 after more than 20 years at the company, including postings in the U.S., Asia and Africa.
Both internal and external candidates will be considered for the role. Glaxo investor Neil Woodford said he would like to see someone from outside the company take the top job. One of that person’s first tasks may be to slash the dividend, investors said.
Potential candidates include Emma Walmsley, head of Glaxo’s consumer-health division, and Abbas Hussain, president of its drug business, according to reports in U.K. media. Chief Financial Officer Simon Dingemans and Roger Connor, who oversees global manufacturing and supplies, may also be considered as internal successors. David Epstein, head of Novartis’s pharmaceutical unit, may also be approached, the reports said.
Witty’s views have diverged from those of his peers. He has avoided large-scale acquisitions that have consumed others such as Pfizer Inc. and Teva Pharmaceutical Industries Ltd. And in 2011, he started a program called Patient First that eliminated the link between sales targets and bonuses for Glaxo’s U.S. marketing team, following allegations of illegally promoting drugs. Few drugmakers followed his lead.
Glaxo’s sales declined to 23.9 billion pounds ($34.2 billion) last year from a peak of 28.4 billion pounds the year after Witty joined. Core earnings per share will probably surge this year, the company has said, after two years of declines.
“The decision will allow him to step aside at a high point following the company’s expected return to double-digit earnings growth in 2016,” Richard Parkes, an analyst at Deutsche Bank AG in London, wrote in a note to clients.
One bright spot has been Glaxo’s portfolio of HIV medicines, which the company considered spinning off in an IPO before opting to keep it. The British drugmaker also has one of the broadest drug pipelines in the industry, with more than 70 new medicines in development (though many are early-stage drugs that won’t deliver sales anytime soon), according to a Bloomberg Intelligence pipeline analysis.
A breakup of the company, favored by some investors including Woodford, might not generate that much value, according to an analysis by Bloomberg Intelligence analyst Sam Fazeli. Separating the drugs, vaccines and consumer-health units will probably increase Glaxo’s enterprise value of 83 billion pounds ($118 billion) by 10 percent or less, he estimated.
After months of anticipation, a Chinese court found the GlaxoSmithKlineGSK.LN+0.90% subsidiary in China guilty of bribing doctors, hospital officials and other non-government personnel, and fined the drug maker more than $490 million, The Wall Street Journal reports. This becomes the largest such penalty levied on a company in China.
At the same time, Mark Reilly, the former head of the Glaxo unit in China, pleaded guilty to bribery-related charges and was given a three-year suspended sentence. There are varying reports, however, whether he will be deported or required to remain in China during that time. Four other senior Glaxo managers in China also received suspended sentences of between two and four years.
As we have noted previously, the drug maker had been accused of running a bribery network in China that was designed to boost drug sales. As part of the scheme, Glaxo employees allegedly bribed physicians and hospital staff members, while channeling kickbacks through travel agencies and trade groups, among others.
The court decisions cap a tumultuous episode for Glaxo, which was already struggling to restore its image and revamp business practices in the wake of a $3 billion settlement with U.S. authorities two years ago. The drug maker had been accused of failing to disclose clinical trial data for certain medicines and improperly marketing drugs, among other things.
Andrew Witty, the Glaxo chief executive, issued a brief statement: “Reaching a conclusion in the investigation of our Chinese business is important, but this has been a deeply disappointing matter for GSK. We have and will continue to learn from this. GSK has been in China for close to a hundred years and we remain fully committed to the country and its people.” (here is the official apology, too).
Despite the contrition, pressure may be mounting on Witty, who has repeatedly emphasized the China and other so-called emerging markets are key to Glaxo growth. As the Journal points out, some investors are starting to question his overall performance and whether the scandal in China may represent a systemic problem.
Indeed, Glaxo previously acknowledged investigating claims employees bribed doctors in Poland, Iraq, Syria, Jordan and Lebanon. Meanwhile, the FBI and the U.S. Securities and Exchange Commission are probing its activities in China. As part of a probe into the pharmaceutical industry, U.S. authorities have been eyeing its overseas dealings since 2010 for possible violations of the Foreign Corrupt Practices Act.
It is worth noting that Witty has now spent half of his six-year tenure trying to overhaul business practices, and has still more fines and investigations to show for his efforts. Granted, cultural differences require varying approaches to success around the world, and Glaxo is not the only drug maker facing this challenge. But Glaxo is now something of a poster child for scandal.
Witty has made headway in other areas. In particular, he has won kudos for his push to make clinical trial data more readily accessible to researchers, a move that has helped Glaxo deflect much of the criticism leveled at the pharmaceutical industry otherwise. In trying to resolve this highly contentious issue, he placed himself and Glaxo in a leadership position.
Whether he emerges unscathed by the latest developments in China – and unfolding events elsewhere – remains to be seen, of course. But Witty may need to have Glaxo executives practice some of the self-criticism that Chinese Communist Party leaders preach as a path toward rehabilitation.
GlaxoSmithKline (GSK) has been fined almost £300m by a court in China – a record in the country – for bribing health officials to use its products.
The pharmaceutical firm confirmed the £297m penalty imposed by the Changsha Intermediate People’s Court in Hunan Province, saying it accepted that illegal activities took place and the fine would be paid through existing cash resources.
The Chinese state news agency, Xinhua, reported that the former head of GSK in China and other executives faced jail terms but a GSK source told Sky News that Mark Reilly was to be deported after being handed a three-year suspended sentence.
The company’s statement said the court found that “GSK China Investment (GSKCI) …offered money or property to non-government personnel in order to obtain improper commercial gains.
“The illegal activities of GSKCI are a clear breach of GSK’s governance and compliance procedures; and are wholly contrary to the values and standards expected from GSK employees.
“GSK has published a statement of apology to the Chinese government and its people on its website.
“GSK has co-operated fully with the authorities and has taken steps to comprehensively rectify the issues identified at the operations of GSKCI.
“This includes fundamentally changing the incentive programme for its salesforces (decoupling sales targets from compensation); significantly reducing and changing engagement activities with healthcare professionals; and expanding processes for review and monitoring of invoicing and payments.”
GSK chief executive Sir Andrew Witty added: “Reaching a conclusion in the investigation of our Chinese business is important, but this has been a deeply disappointing matter for GSK.
“We have and will continue to learn from this. GSK has been in China for close to a hundred years and we remain fully committed to the country and its people.”
The investigation took a number of twists with a British man, who was hired as an investigator by GSK, being jailed for two years and six months in August.
The Chinese authorities claimed Peter Humphrey illegally obtained Chinese citizens’ personal information and sold it to companies including GSK.
The London-listed firm hired him after an anonymous email, containing a sex tape of Mr Reilly and his Chinese girlfriend, was sent to senior management in January last year.
The email alleged corrupt practices in GSK’s China operation.
GSK’s ethical standards have also been called into question in Lebanon, Iraq, Jordan,Syria and Poland.
For the past year, the GlaxoSmithKlinebribery scandal in China has centered on its pharmaceutical business, but newly reviewed documents indicate the drug maker became aware of compliance issues in its consumer health care business as early as 2012, according toReuters.
Glaxo confirmed that it conducted an internal investigation into procurement practices in the consumer unit in China, the news service writes. Although the drug maker tells Reuters there was no sign of “unethical conduct,” it did find “some non-compliance with our procurement procedures.” Glaxo says the inquiry was unrelated to a Chinese criminal investigation into corruption in its pharmaceutical division, which was made public last year.
The investigation focused on specific people and suppliers in China – including some employees, academics and education institutes – and was related to a U.S. Department of Justice and U.S. Securities Exchange Commission inquiry into possible violationsof the Foreign Corrupt Practices Act, according to Reuters. The law targets illegal payments to foreign government officials used to boost sales.
The news service, which wrote that it reviewed three internal Glaxo notices, stressed that the documents do not amount to evidence of wrongdoing by Glaxo or its business partners. The notices were sent by Glaxo lawyers to employees and e-mailed to senior Glaxo staff in China, according to Reuters, which adds that the drug maker has since cut ties with some suppliers.
A Glaxo spokesman tells Reuters that the notices “related to allegations around adherence to procurement policies within our Chinese consumer healthcare business. We investigated using resources inside and outside the company, and did not find evidence of unethical conduct, but did identify some non-compliance with our procurement procedures and remedial action was taken.”
The disclosure raises questions about Glaxo operations in China that had not previously been in the public spotlight. The drug maker, you may recall, has been coping with turmoil ever since bribery allegations surfaced in China, which is a large and growing market not just for Glaxo, but the entire pharmaceutical industry.
As reported previously, Chinese authorities recently accused the former head of Glaxo operations in China of ordering subordinates, his sales team and other employees to bribe hospitals, health care organizations and others. Separately, the drug maker said it is investigating claims that its employees bribed doctors in Iraq, Syria, Jordan and Lebanon.
Glaxo has previously acknowledged that some of its Chinese executives may have broken the law, but has maintained there is “zero tolerance” for bribery. We asked Glaxo for comment about this latest report and will update you accordingly.
“Why did Chinese authorities choose GSK? Such corruption is common practice in Chinese pharmaceutical companies, partly due to low salaries for doctors. The Chinese authorities appear to be holding onto the affair tightly, leading to speculations of political motives.
These speculations have arisen from the company’s links with Betsy Li Heng, a former director of GSK’s corporate affairs. Li’s two brothers, Hu Deping and Hu Dehua, have long been advocating political reform – going so far as to criticise President Xi. This is almost unheard of amongst Chinese officials and intellectuals, and the scandal could be a warning for them”
GlaxoSmithKline’s bribery scandal in China might actually be about shutting up political reformers
“The theory floating around Beijing political circles and in internet postings is that when China’s top leaders were deciding which pharmaceutical company to go after, they settled on GSK because they could achieve two goals simultaneously. Not only have they warned the drug industry to clean up its act; they have also sent a message to the Hu family to pull their necks in. According to this theory, the real targets of the crackdown on GSK are two of Li’s brothers, Hu Deping and Hu Dehua, both of whom have been outspoken advocates of political reform.”
GSK, corruption and the Byzantine world of Chinese politics
“When asked whether GSK believes the ongoing bribery and corruption investigation is related to elite Communist party politics, a spokesperson declined to comment beyond confirming that Li had worked for the company from the mid-1990s until 2007.
Adding to suspicions that an orchestrated smear campaign is targeting the Hu family, a series of anonymous internet postings claiming that Hu Deping owns at least one luxury apartment in central Beijing have also appeared in recent weeks.
Hu has denied that he owns the apartments.
Last week, allegations of “suspected massive corruption” were levelled by a senior state-employed journalist against a major state-owned conglomerate that previously employed another Hu Yaobang son, Liu He.
Liu was vice-chairman of Hong Kong-listed China Resources Group, the company named in the allegations, until his retirement in 2005. His retirement pre-dates the alleged corruption.
There has been a string of whistle-blowers exposing official corruption in recent months but it remains extremely rare in China for journalists at state media organizations to make such public accusations.”
“Major web portals have also linked to a story about a statement that is said to have been authored by Betsy Li Heng, the daughter of former Chinese Communist Party leader Hu Yaobang. The statement, which was posted to a Weibo account, refutes rumours about her private life and clarifies her association with GlaxoSmithKline. (SCMP)”
‘Betsy Li Heng, the daughter of former Chinese Communist Party leader Hu Yaobang, has dismissed rumours about her private life and her association with GlaxoSmithKline, a pharmaceutical conglomerate currently under criminal investigation in China for bribery, according to an online statement.
The allegations are the latest in a series of adverse reports circulating online on the offspring of the reformist party elder, whose death triggered the Tiananmen protests in 1989.
Li served as director of GSK’s corporate affairs in its Beijing office from the mid-1990s to 2007. Her departure from the company predates the alleged acts of bribery by the company in China.
Li also denied she had a daughter who was studying in Britain. “Ms Li Heng does not have a daughter,” the statement reads. “Rumours are a tool to hurt people.”
The unsigned statement, which could not be independently verified, is dated July 27 and was first shared on the official Sina Weibo account of KDNet, a popular forum for political debate, on Monday.
Li, who adopted her mother’s surname, also said she and her husband Liu Xiaojiang did not own luxury villas in Beijing downtown and in the Xiangshan mountains west of Beijing, as claimed in online posts. Photos of a purported residence had circulated online earlier in July.
Her brother Hu Deping, a member of the Chinese People’s Political Consultative Conference, also dismissed online allegations of owning a luxury property in Beijing, which appeared around the same time.
Hu said that his father’s descendants had nothing to hide, but the publication of the family assets should be made in an orderly manner.
At the same time, Xinhua journalist Wang Wenzhi accused China Resources, a Hong Kong-listed company, of “massive corruption”, in a rare exposure by journalists of the state-run news agency.
Observers noticed that Li’s other brother Liu Hu served as a former deputy general manager and executive board director for the company until his retirement in 2005.
For Wang Jiangsong, a philosophy professor at the China Institute of Industrial Relations in Beijing, these attacks have been orchestrated by opponents of the Hu family.
“It is probably extreme conservatives trying to blacken their names,” he said.
Days ahead of the leadership transition in the Communist Party in autumn, Hu’s eldest son Hu Deping wrote an open letter calling for reform and for policies that conform more to the country’s constitution.
“Constitutional rule is an abhorrence to both [the Communist Party’s] extreme right and left wing,” said Wang. “The Hu family represents healthy forces within the party.”
“The influence and appeal of them openly parading the banner of constitutionalism is no trivial matter,” he said. “Therefore, they had to be politically ruined and discredited among the people.”
Among the four hundred people who have commented on the statement on microblogs, many have expressed similar suspicions about a smearing campaign and expressed support for the family. Some have questioned the veracity of the statement.
Hu Deping could not be reached for immediate comment.
11.00pm: The court sentences Humphrey to two years and six months in jail on charges of “illegally obtaining private information”, a fine of 25,000 yuan, and deportation from China.
11.05pm: The court sentences Yu to two years and in prison on charges of “illegally obtaining private information”, and a fine of 15,000 yuan.
11.07pm: The couple has five days to appeal this verdict. Court is adjourned.
No mention of GSK throughout the trial.
What is striking though is…
3.34pm: Yu’s lawyer asks Yu whose personal information she had obtained. The presiding judge interjects that such this has been dealt with at a pre-trial hearing. If these names are to be named again, then the current hearing could not be public, the judge says.
Looks like GSK’s lawyers may have been working behind the scenes.
8.45am: A prison van carrying Humphrey and Yu arrived at the court on Hongqiao Road
9.31am: The hearing begins, the court says on its Weibo account.
10.02am: Their son Harvey Humphrey, 19, is in the court room along with consular officials. Last month, Chinese authorities backtracked on plans to hold the trial in secret.
10.11am: The presiding prosecutor says Humphrey and Yu were criminally detained on July 11, 2013, and formally arrested on August 16, 2013.
10.16am: Prosecutor: between April 2009 and July 2013, the two defendants obtained 256 items of information including identity documents, travel records, mobile phone numbers from three Chinese sources, who are facing separate investigations. They paid between 800 and 2,000 yuan per piece of information and resold the information to foreign and domestic clients.
10.43am: Prosecutor questions Humphrey: “Are the facts as laid down in the charges against you accurate?” Humphrey replies: “In general, they look correct, but as for the charges, I don’t understand Chinese law, I am therefore not in a position to comment.”
Prosecutor asks again if Humphrey has objections to the charges. Humphrey says he does not object to the charges.
10.52am: Questioned by the prosecution, Humprey explains how he first registered ChinaWhys as a company in Hong Kong in late 2003 and then in May 2004 established his Shanghai-based firm, Shelian.
10.54am: Humphrey explains that he had chose a different name for his Chinese company because the Industrial and Commercial Administration in Shanghai did not approve ChinaWhys as the company’s name.
10.56am: Humphrey lists the services he provided to clients.
10.57am: He said he provided background investigations on companies and potential hires for clients.
10.58am: He also researched industries to help clients understand the business environment and evaluated clients’ employees, partners, suppliers in situations potentially involving corruption of fraud.
11.00am: Humphrey: “Sometimes clients would raise requests we can’t handle ourselves, and we would look for companies which could accomplish it for clients.”
11.01am: Humphrey: “In general, our services are to help reduce risks, especially in terms of fraud and corruption, for our clients.”
Humphrey testifies in English. Quotes are translated from the court’s Chinese-language transcript.
11.10am: Humphrey says he has worked for several hundred clients between 2004 and 2013.
11.14am: Humphrey lays out how he investigated for clients: internet searches, information provided by clients, interviews, on-site inspections. If that information proved to insufficient, he says he contracted other companies to obtain information, but such information accounts for a very small part of his services to clients.
11.15am: The prosecutor asks Humphrey if he had bought large amounts of citizens’ individual information. Humphrey says he contracted other companies to provide such information, paying them a service fee.
11.20am: The prosecutor asks Humphrey why his testimony differed from what he told police earlier over the price of individual pieces of information. Humphrey says he never told police the exact price of each piece of information he had obtained.
11.23am: The prosecutor asks Humphrey whether he has ever tailed or monitored a citizen. Humphrey says he has never provided such services. He says he has helped clients find Chinese companies that could provide such services.
11.25am: Humphrey says the English word “monitoring” covers a wide range of activities including reading news reports.
11.28am: Prosecutor asks if Humphrey posed as a family member or client to interview target companies. He says he had sometimes used aliases in field investigations or telephone calls.
11.30am: Humphrey says he made sure facts, analysis and conjecture were clearly differentiated in his reports to clients.
11.34am: The prosecutor asks whether Humphrey recalled a project called “Blackthorn”.
11.36am: Humphrey is asked whether he paid to obtain a target’s mobile phone records while conducting the “Blackthorn” project conducted for a Finnish company.
11.42am: Humphrey says he could not remember whether he paid for information in this particular case. He says he acquired information from Zhou Hongbo and Liu Yu about a target who worked in Shandong and travelled frequently to Hong Kong. The client wanted to know what the target was doing in Hong Kong and what assets the target had in the territory. Humphrey says he commissioned another company in this case.
11.49am: Prosecutors ask Humphrey about an “Operation Clown” and “Operation Goose” for two German clients. He replies that he remembers these projects, but struggles to recall details.
11.50am: Prosecutors ask Humphrey whether he and his wife have paid for 256 items of information provided by Liu Yu, Cai Zhicheng, and Zhou Hongbo. He says he doesn’t recall specific numbers but says it is possible they have used these services for as many times.
11.52am: Humphrey says he would call the three individuals, each of whom runs their own company, and pass on targets’ names. In the beginning they would provide reports, but later they became more and more lazy, says Humphrey.
11.54am: Information provided to him included targets’ identity and residency information, information on their family members, overseas travel records and mobile phone records.
11.56am: Humphrey says he and, his wife Yu and a former foreign employee have all contacted these three individuals.
12.00pm: Asked by prosecutors, Humphrey says he paid for such private information. He says he saved much of that information on his hard drives. He says all of his company’s financial matters were handled by his wife.
12.01pm: Humphrey says he was aware that he had obtained private information from citizens after 2009, when a new law on the secrecy of private information was enacted.
12.04pm: Prosecutors ask Humphrey whether he changed his work tactics when Liu Yu was detained. Humphreys says he had learned in March 2013 that Liu had gotten into trouble. He says he gradually changed his company’s operations, but had not completed the changes by the time he was himself detained later in the year.
12.06pm: Prosecutors ask Humphrey whether he thinks that private information could be freely sold on the market. Humphrey says he has never engaged in the business of trading private information.
12.10pm: Prosecutors ask Humphrey how much he charged for his reports. Humphrey says the price depended on the amount work the reports required and that his earlier statement saying reports cost between 40,000 and 50,000 yuan was just an approximation.
12.17pm: Prosecutors ask Humphrey about one report for which he charged 2.64 million yuan and used nine elements of private information. Humphrey says he spent almost a year working on the project.
12.18pm: Prosecutors ask Humphrey if he was detained by Shanghai police in his office. Humphry affirms. The prosecution ends its questioning of Humphrey.
12.21pm: Humphrey’s defence team is now questioning him.
12.22pm: Humphrey says his company’s business model has not changed much since he started the company in 2004. Internal graft and corruption increasingly became a focus of his inquiries, he says. He adds that over the last years he increasingly relied on interviews and public information.
12.26pm: Humphrey says 700 is a correct approximate estimate of the number of reports he produced for clients since 2004. He says he only started a numbered filing system in 2005.
12.28pm: Humphrey says he estimated about half of his reports contained some private information.
12.31pm: Humphrey says companies approached him to investigate their suspicions for fraud and graft. He says 90 per cent of such allegations proved correct.
12.33pm: Humphrey says he needed personal information to verify the identity of targets as, for example, company shareholders and to check whether they had conflicts of interests in their business dealings. He also needed the information to prove that targets were in contact with certain other individuals.
12.37pm: Humphrey says Liu Hong, Cai Zhicheng and Zhou Hongbo run their own companies and that he had now way of auditing their operations.
12.41pm: A defence lawyer asks Humphrey whether he paid for services or private information from Liu Hong, Cai Zhicheng and Zhou Hongbo. Humphrey says he paid for services. They provided him with feedback and additional information, he says.
12.45pm: A defence lawyer asks Humphrey whether he knew where the private information he paid for came from. Humphrey says he did not know how the information was obtained. He says he was aware that law firms could obtain some information.
12.47pm: The court directs a defence lawyer for his wife Yu Yingzeng to ask Humphrey questions. The lawyer asks Humphrey about his typical clients.
12.47pm: Humphrey says most of his clients were large or medium-sized companies. Most were foreign companies, but some were Chinese. They operated in manufacturing and finance or were law firms, he says.
12.48pm: These companies hired him to investigate merges, the hiring of senior executives and corrupt practices of employees, he says.
12.51pm: The court rests until 1.30pm.
1.33pm: The court hearing resumes.
2.07pm: Yu’s defence lawyer asks Humphrey whether clients transferred his commissions to his private or to a company bank account. Humphrey says the commissions were transferred to the company’s bank accounts, either in Hong Kong or Shanghai.
2.14pm: Yu’s lawyer asks Humphrey when he actually tailed a target. Humphrey says he never tailed targets, but, in rare cases, commissioned another company. In one such case, Operation Blackthorn, he proved that a Finnish company’s general manager was defrauding the company and saved it from incurring tens of millions of US dollars in damages, he says.
2.16pm: Judges now direct questions to Humphrey.
2.18pm: A judge asks Huphrey whether he consulted his wife Yu over each decision to obtain private information. Humphrey says they sometimes discussed what kind of information they should try to obtain.
2.20pm: A judge asks Humphrey whether he had signed contracts with the companies that provided him with personal information. Humphrey says he did not sign contracts for individual assignments, but had signed framework contracts relating to secrecy and conflicts of interest.
2.23pm: Humphrey says he did not use every bit of private information in his reports for clients. Some elements of private information helped him as background knowledge when compiling such reports.
2.24pm: Yu Yingzeng is now called to testify.
2.38pm: The presiding judge asks Yu whether she has clearly heard and understood the charges brought against her. She says she has heard and understood every word of them.
2.42pm: Asked whether the charges are accurate, Yu says she would like to clarify two points: Firstly, the price of 800 to 2,000 yuan for piece of information is only an approximation. Secondly, they did not sell public information, but used it to create reports. She says they have never bought information for their own benefit.
2.45pm: The prosecution asks whether Yu had problems when she registered their company in Shanghai, Shelian. Yu says they tasked an agency to handle the paperwork. She says she had no problems in the registration process.
2.48pm: The prosecution asks Yu whether they had compiled about 700 reports. Yu affirms, but says some reports were also compiled abroad.
2.48pm: Asked by prosecutors, Yu admitted to using citizens’ private information.
2.49pm: Prosecutors ask Yu about the origin of this information. Yu says until 2009 they obtained information from Zhou Hongbo, from 2009 until 2011 from Liu Yu and most recently from Cai Zhicheng.
2.50pm: Yu says she never tried to bargain down the cost of information.
2.55pm: Yu says she never knew that the information she obtained was illegal. She says because she did not know the information’s origin, she could not have committed a crime. She says she was not aware that obtaining such information was illegal in mainland China, when it possible to legally obtain the same information in Hong Kong. If she had known she was acting outside the law, she would have destroyed all evidence, she argues.
2.59pm: Yu says 90 – 95 per cent of the information she obtained from Liu Yu, Zhou Hongbo and Cai Zhicheng related to targets’ identity and residency. Phone and overseas travel records have only become recently available, she says.
3.02pm: Yu says only she and her husband knew about Liu, Zhou and Cai’s identities. Prosecutors ask whether she had to go through these agents to obtain information because the information she needed was not publicly available.
3.05pm: Yu says the prosecutor’s assumption is incorrect. She says she knew that Zhou Hongbo was a lawyer and that lawyers could obtain information. She says she did not know how Liu and Cai obtained their information.
3.07pm: “We did not know obtaining these pieces of information was illegal in China”, says Yu.
3.07pm: “Do you think it would touch your privacy if your husband’s or son’s private information was sold and bought?”, asks the prosecutor.
3.09pm: “I have lived abroad for a very long time, my US phone number and address can be found in the yellow pages, it is very easy in the US to find such information,” replies Yu.
3.10pm: Yu says she only rarely assigned another company to tail a target. “95 per cent of our employees’ work was done in the office, investigating online,” she said.
3.14pm: Prosecutors ask Yu whether she has ever impersonated a client, an investor or a relative of a target to obtain information.
3.15pm: Yu says they have pretended to be business contacts.
3.16pm: Asked by prosecutors, Yu says they charged clients between 20,000 and 200,000 for individual reports.
3.17pm: Asked by prosecutor show she paid Liu, Cai and Zhou, Yu says she wants to clarify that she they mostly provided company records. She then says she sometimes transferred their commissions to their private accounts in Hong Kong or the mainland.
3.29pm: The prosecution ends its questioning of Yu.
3.30pm: Yu is now questioned by her own defence lawyer. When asked, Yu says she emigrated to the US in 1981 aged 28. She returned to China in 1999.
3.34pm: Yu’s lawyer asks Yu whose personal information she had obtained. The presiding judge interjects that such this has been dealt with at a pre-trial hearing. If these names are to be named again, then the current hearing could not be public, the judge says.
3.36pm: Yu’s lawyer asks her whether the information she acquired was generic or targeted towards certain people. Yu says she acquired information to prevent and deal with internal corruption in companies and not use this information for individual profit.
“We helped clients solve problems that public security organs could now solve, making them more transparent and open,” she says.
3.42pm: Yu’s lawyer asks her what kind of information she obtained. Yu says 90 – 95 per cent of information was identity and residency information, which, she says, was required to find out whether a client’s employee used a relative to open their own company.
3.44pm: Asked whether every report contained private information, Yu says those containing private information were few and much even less since 2011.
4.07pm: Yu tells the court how they used overseas travel records, including to Hong Kong, to trace fraud.
4.09pm: The presiding judge asks Humphrey’s lawyer whether he wants to ask Yu any questions. Asked, Yu describes the workflow of a typical investigation.
4.12pm: Yu reiterates she obtained information from the client, from online sources or third parties.
4.15pm: Yu accepts the charges in as much as she bought information from a third party, but rejects them saying that she did not sell the information, but only used it to provide analysis to clients.
4.16pm: The defence teams end questioning. The judged ask some additional questions.
4.17pm: Asked by a judge, Yu says she did not sign contracts with Zhou, Liu or Cai, because the amount of money involved was too small.
4.19pm: Asked by a judge whether they would have been able to complete their assignments without private information, Yu says: “More is always better than less.”
4.23pm: The court calls Humphrey back to the stand.
4.27pm: The prosecution submits the testimony of three foreign executives and a former employee at Shelian.
4.31pm: The prosecution submits a second set of evidence: testimony by four former Shelian employees and a technician who provided repair services to Shelian.
4.35pm: After a brief interruption debating the merits of the evidence, the prosecution continues with submitting further elements of the second set evidence: testimony by three more former employees. Humphrey interjects, saying two employees only worked with him only very briefly.
4.52pm: The prosecution submits a third set of evidence to the court: testimony by Humphrey, Yu, testimony by Zhou Hongbo, Liu Yu, Cai Zhicheng.
4.57pm: Liu Yu says she was criminally detained in January 2013 for illegally obtaining private information.
4.59pm: Cai Zhicheng says he charged Humphrey 1,500 yuan for every piece of information he provided: identity and residency papers, overseas travel records.
5.01pm: Zhou Hongbo says Humphrey paid thousands and sometimes more than 10,000 yuan for the investigation of a target, which normally lasted between half a month and a full month.
Transcript will be updated during the day.
5.41pm: The prosecuion says it can prove with its evidence that Humphrey and Yu bargained with third parties over the price of private information they acquired. It also says that private information of all citizens is covered by criminal law, not merely information handled by public organs and companies.
5.44pm: The prosecution submits the fourth set of evidence: Documents, computers and harddrives seized at their residence in Beijing and their office in Shanghai. One harddrive contained 48,849 documents that relate to the charges, one laptop contained 52,234 documents relating to the charges, the prosecution says.
5.47pm: Humphrey says many of the documents could be duplicates.
5.50pm: The prosecution says evidence proves that Humphrey tailed a target in Operation Blackthorn. Humphrey says the task was carried out by a third party.
5.53pm: A defence lawyer for Humphrey reiterates his client’s point. His other lawyer says tailing a target is not necessarily illegal. There are no legal provisions banning the tailing of others to protect one’s own legitimate interests, says the lawyer.
5.55pm: The court rests for a ten minute break.
5.59pm: The court releases its next transcript. A defence lawyer for Yu says monitoring is only once mentioned in the deposition and it referred to an employee standing outside an office building for over three hours.
6.01pm: The prosecution says it documented the use of private information in 27 reports in this set of evidence submitted to the court. It adds that it provided relevant information in the pre-trial hearing.
6.25pm: The court says on its Weibo post that it will hold a press conference on the trial at 7.30pm. The hearing is still ongoing.
6.37pm: Prosecutors say Shelian company had revenue of 20.96 million yuan between 2005 and 2013. The company earned 830,000 yuan for its work on the Operations Goose, Clown and Blackthorn, prosecutors say.
6.43pm: Prosecutors submit Humphrey’s testimony to police in which he reportedly said that he was aware he was operating in a legal grey zone. He was counting on luck and not considering the consequences, he reportedly told police.
6.46pm: Prosecutors submit Yu’s testimony to police in which Yu reportedly said she obtained hukou information, information on a target’s family members, criminal records and telephone records from Zhou Hongbo. She paid 2,000 yuan for personal information and ordered 20-30 items every year, she said.
6.49pm: Yu worked with Liu Yu until Liu was detained in 2013, according to the police record. Liu provided hukou information, information on a target’s family members, criminal record, overseas travel records, mobile phone records and other information. Liu charged about 800 yuan for an item of information.
6.51pm: Cai Zhicheng provided information of about 20 individuals to Humphrey and Yu, according to Yu’s statement to police. Cai charged between 1,000 and 1,500 yuan.
6.53pm: Yu reportedly told police that they transfered Zhou, Cai and Liu’s commission to their US dollar accounts in Hong Kong.
6.54pm: “Our buying of private information was wrong, but it was not a business operation,” she reportedly told police. “We have a grey zone in this industry, at the time we used extraordinary channels to buy these citizens’ personal information.” Yu reportedly said they relied on luck, did not consider the consequences and regretted their actions.
6.59pm: Reacting to the evidence submitted to the court, both Humphrey and Yu say she never told police they relied on luck. Yu said she did not know about the legal environment after the 2009 criminal law reform on privacy.
7.03pm: Humphrey asks the prosecution when police received a first complaint. Prosecuters say the case file started on July 1, 2013.
7.08pm: A defence lawyer submits a third letter attesting to the couple’s good character, two earlier ones’ had already been submitted to the court .
7.09pm: The court concludes the examination of evidence.
7.11pm: The court moves to closing arguments. The prosecution begins.
7.15pm: The prosecution closes by saying that the couple has for nine years bought information on citizens’ identity and residency, family members, vehicle registration, phone records, overseas travel records and had their staff pretend to be employees, investors, clients, or delivery personell to obtain further information. They hired agents to tail and monitor citizens to know more about their living habits and movements.
7.17pm: The prosecution says the couple’s crime was particularly egregious, because they committed it over a period of nine years and because they reaped enormous benefits.
7.19pm: The prosecution closes with a plea for the sanctity of the private space. “Let’s try to consider, if our citizens live in fear in such an environment, how can they feel secure, free or have human rights?”
7.30pm: The court hearing takes a break, to resume later this evening.
More to follow…
8.00pm: In his closing defence, Humphrey said the duo did not sell personal information, but rather, sold the analysis and research of such information to clients. He added that the company’s main service is to investigate internal graft, fraud and help cultivate a good business environment. “They have no other ways of achieving this goal.”
8:10pm: In her closing defence, Yu asked the prosecution for proof that 300 reports out of the 700 used personal information. She also disputed the company’s revenue, saying that the prosecution did not calculate for profit after expenses and costs. She shared an anecdote: “Someone saw a thief steal something, but the police said there’s no evidence therefore they can’t arrest the thief, so the person found the evidence and arrested the thief, then the police came back and said the person broke the law. The public security organ said you violated the thief’s rights.”
8:15pm: The court rests for 30 minutes.
9:00pm: Both defence lawyers argue that Humphrey and Yu’s actions have inflicted limited harm to society and does not constitute a crime.
9:15pm: The prosecution maintains that the duo violated citizens’ rights. “Before a court ruling, those they investigated have not been deemed corrupt, how can you say the parties you are investigating are corrupt?”
10.10pm: In his closing statement, Humphrey talks about his childhood fascination and respect for China. Growing up in a poor family, he saw the China in 1979 and wanted to be a part of its development. He says he has always supported anti-corruption in China, and many of his projects dealt with helping different companies detect internal corruption and fraud. He and his wife wanted to give back to the Chinese community but failed due to their lack of understanding on the 2009 criminal law reform on privacy. Humphrey apologises for disobeying the law and expresses regret. “My wife and I still love and respect China passionately.” He hopes the court will accept their apology.
10.20pm: In her short closing statement, Yu expresses regret over their crimes and begs the court to forgive her husband.
10.30pm: The verdict will be released after the court rests.
11.00pm: The court sentences Humphrey to two years and six months in jail on charges of “illegally obtaining private information”, a fine of 25,000 yuan, and deportation from China.
11.05pm: The court sentences Yu to two years and in prison on charges of “illegally obtaining private information”, and a fine of 15,000 yuan.
11.07pm: The couple has five days to appeal this verdict. Court is adjourned.