In re Caremark International Inc. Derivative Litigation

Caremark International faced a major federal investigation for allegedly paying doctors improperly for Medicare and Medicaid patient referrals; before the investigation, Caremark had a practice of financial arrangements with referring doctors that raised legal questions, though the board had issued clarifying guidelines and, once notified of the investigation, stopped certain fee arrangements and hired an outside auditor. After junior officers were indicted and Caremark paid roughly $250 million in penalties, shareholders (plaintiffs) brought derivative suits against the directors (defendants) for failing to adequately oversee employee conduct; the parties negotiated a settlement involving only prospective policy changes, with no monetary payment from the directors.