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As University of Maryland Medical System scandal shows, boards of directors face more scrutiny than ever

What happens in the boardroom no longer necessarily stays in the boardroom.

That, at least, is one takeaway from the recent scandal involving the University of Maryland Medical System’s board, nine of whose members were revealed by The Sun to have lucrative deals to sell goods and services to the hospital network — including Catherine Pugh, whose sale of self-published children’s books ultimately led to her resignation as mayor.

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But boards of directors have been on notice in recent years that when federal authorities investigate their organizations for fraud or other white-collar crimes, they could find themselves charged individually as well. In fact, according to emails The Sun received in response a Maryland Public Information Act request, the university medical system’s chief compliance officer gave a presentation to board members about accountability and the risk of prosecution at a Feb. 13 meeting.

The printed material for Christine Bachrach’s presentation, “Governing Board Trends and Conflicts of Interest,” referred to a 2015 Department of Justice directive known as the “Yates memo,” after its author, which sought to hold individual officials and employees accountable for organizational misdeeds.

“One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing,” then-Deputy Attorney General Sally Yates wrote in the memo.

Bachrach’s presentation cited federal data showing that 131 organizations were convicted of a federal offense in fiscal 2017, roughly the same as the prior year. The data show the most common offense committed was fraud, comprising 29 percent of the cases.

In cases where individuals also were convicted along with their organization, Bachrach noted — underlining the statistic for emphasis — 21 percent of them were board members.

There is no indication the UMMS board is under investigation; on April 25, UMMS received a subpoena for documents and information from federal prosecutors for “their investigation of Mayor Pugh,” according to a system spokesman. That was the day the FBI and IRS raided Pugh’s home, City Hall offices and other locations related to her.

Bachrach’s presentation came right before the board discussed state legislation introduced Feb. 4 by Sen. Jill P. Carter, a Baltimore Democrat, that would make it illegal for board members to profit from contracts with the hospitals they govern. That bill prompted the scrutiny that resulted in the UMMS scandal.

The printed material from the Feb. 13 meeting doesn’t indicate if Bachrach discussed changes that occurred since the Yates memo was written, and President Trump took office in 2017. (Trump fired Yates 10 days after taking office because she refused to defend his executive order to close the nation’s borders to refugees and people from predominantly Muslim countries.)

Deputy Attorney General Rod Rosenstein announced revisions to Yates’ “all-or-nothing” approach in November 2018. While still focusing on individual accountability, federal officials were given more discretion in negotiating settlements in civil cases.

“The idea that a company that engaged in a pattern of wrongdoing should always be required to admit the civil liability of every individual employee as well as the company is attractive in theory,” Rosenstein said, “but it proved to be inefficient and pointless in practice.”

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