knowing violation of law

Caremark International, Inc., a Delaware corporation headquartered in Northbrook, Illinois, was spun off from Baxter International, Inc. in November 1992 and became a publicly traded company on the New York Stock Exchange. Prior to and after the spin-off, Caremark operated in patient care and managed care segments, deriving substantial revenues from Medicare and Medicaid reimbursements subject to the Anti-Referral Payments Law. The company entered into contracts for services (e.g., consultation agreements and research grants) with physicians and health care providers, some of which involved individuals who referred patients to Caremark services. From 1989 onward, Caremark and its predecessor maintained a Guide to Contractual Relationships that prohibited payments in exchange for patient referrals, with annual reviews by lawyers. Following the issuance of safe harbor regulations by the Department of Health and Human Services in July 1991, Caremark revised its agreements and the Guide in attempts to comply. In August 1991, the HHS Office of the Inspector General initiated an investigation into Caremark's predecessor, later joined by the Department of Justice in March 1992, leading to subpoenas for documents including Quality Service Agreements. In response to the investigation, Caremark centralized management, terminated physician management fees for Medicare and Medicaid patients as of October 1991, published revised Guides, required approvals for contracts, and implemented ethics training and hotlines by 1993. An internal audit by Price Waterhouse in 1993 found no material weaknesses in controls. Despite these measures, a federal grand jury in Minnesota issued a 47-page indictment on August 4, 1994, charging Caremark and others with ARPL violations involving over $1.1 million in payments to a physician, followed by an Ohio indictment in September 1994. Five stockholder derivative actions were filed in 1994 and consolidated in the Delaware Court of Chancery, alleging that directors breached their duty of care by failing to supervise employees, exposing the company to liability. Caremark entered a government settlement in June 1995, pleading guilty to one count of mail fraud, paying fines and damages totaling around $250 million overall, and agreeing to a Corporate Integrity Agreement. It also settled with private payors for $98.5 million in March 1996. The parties negotiated a proposed settlement of the derivative litigation requiring enhanced compliance committee oversight and policy affirmations, leading to a fairness hearing on August 16, 1996.