Conviction of Wire Fraud Requires Defendant to Repay Funds Advanced by Employer and Insurers
Post 4852
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Defendant Dr. W. Scott Harkonen was the Chief Executive Officer of InterMune, Inc. (“InterMune” or the “Company”). Following the issuance of a misleading press release in 2002, Dr. Harkonen became a criminal defendant. To fund his sophisticated and well-resourced defense, Dr. Harkonen requested and accepted very sizeable advancements from the Company that funded the advancements via several director and officer (“D&O”) insurance policies and from its own coffers. The advanced sums were subject to repayment if the litigation was found to be non-indemnifiable. A federal jury subsequently convicted Dr. Harkonen of felony wire fraud in 2009. Dr. Harkonen then embarked on nearly a decade of unsuccessful appeals to overturn that conviction.
In Intermune, Inc. and Roche Holdings, Inc. v. W. Scott Harkonen, M.D., C. A. No. 2021-0694-NAC, Court of Chancery of Delaware (August 1, 2024) multiple motions were considered and resolved by the Court.
In light of the wire fraud conviction, two of the Company’s excess D&O insurance providers demanded that InterMune and Dr. Harkonen repay the sums advanced to Dr. Harkonen to litigate the wire fraud charge. In 2019, InterMune and Dr. Harkonen settled with the two insurers. InterMune paid the settlements in full and retained its right to sue Dr. Harkonen for recovery. InterMune exercised that right with this litigation.
FACTUAL BACKGROUND
On March 22, 2000, the Company and Dr. Harkonen entered into an indemnity agreement (the “Indemnity Agreement”), whereby the Company “agree[d] to hold harmless and indemnify [Dr. Harkonen] to the fullest extent authorized or permitted by the provisions of the Bylaws and the [DGCL.]” Dr. Harkonen executed an agreement to repay the amounts incurred in his defense “if it shall be determined ultimately that [he] is not entitled to be indemnified under the provisions of this Agreement, the Bylaws, the [DGCL] or otherwise.”
Prosecution and Insurance Policies
On March 18, 2008, a grand jury indicted Dr. Harkonen “for fraudulently promoting . . . Actimmune (interferon gamma-1b) by putting out false and misleading information about the drug’s effectiveness in treating [IPF].” Dr. Harkonen was indicted on one count of felony misbranding and one count of felony wire fraud.
The cost of litigating Dr. Harkonen’s charges with a large and prestigious legal team was substantial and depleted the burning limits of the D&O policies.
On September 29, 2009, regardless of the efforts of his high priced lawyers, following a six-week trial and four days of jury deliberation, the jury acquitted Dr. Harkonen of the misbranding charge but found him guilty of felony wire fraud.
Reining In Fees
On December 13, 2011, the Company and Dr. Harkonen entered into a settlement agreement (the “2011 Settlement Agreement”) to address the Company’s obligation to advance Dr. Harkonen’s legal expenses. In the 2011 Settlement Agreement, the Company agreed to pay almost $2 million of Dr. Harkonen’s outstanding legal expenses.
More Federal Court Litigation
On May 16, 2011, Dr. Harkonen unsuccessfully appealed his wire fraud conviction to the U.S. Court of Appeals for the Ninth Circuit.
Medical Board of California Disciplinary Action
Dr. Harkonen’s wire fraud conviction also had professional ramifications. Dr. Harkonen did not fulfill the terms of disciplinary action and remains unlicensed, and his medical license has been canceled.
This Litigation
The court granted partial summary judgment in favor of the Company (the “Summary Judgment Opinion”), holding that although he received a Presidential Pardon from President Biden, the Pardon did not render Dr. Harkonen’s wire fraud litigation successful on the merits or otherwise for purposes of indemnification Delaware law. Dr. Harkonen had a full and fair opportunity to challenge the conviction through the appellate process.
LEGAL ANALYSIS
The corporation, rather than the employee, bears the burden of proof in an advancement claw-back action. The Bylaws provide that “the corporation shall indemnify its directors and officers to the fullest extent not prohibited by the DGCL or any other applicable law[.]”
D&O Settlement Indemnification
Dr. Harkonen is precluded from establishing good faith because his wire fraud conviction is conclusive evidence that he acted in bad faith.
Dr. Harkonen was convicted of felony wire fraud. Accordingly, Dr. Harkonen was found to have acted in bad faith.
VERDICT
Dr. Harkonen must repay the Company the $5,906,927.02 it seeks in this action as repayment of advanced sums for which Dr. Harkonen is not entitled to indemnification. Dr. Harkonen voluntarily demanded their payment and gave the Undertaking to repay.
CONCLUSION
Dr. Harkonen is ultimately responsible for those legal expenses incurred in litigating his wire fraud conviction.
ZALMA OPINION
This case is an example of an abuse of a corporation’s obligation to pay to defend its CEO. The corporation and its insurers paid almost six million dollars to defend Dr. Harkonen to claims of wire fraud and tried to even obtain money from the corporation when he sought, and received, a Presidential pardon. His guilt did not go away with the Pardon and he must now repay the corporation almost $6 million plus interest. Dr. Harkonen was a criminal who took advantage of the by-laws of the corporation, the Directors and Officers insurance policies and every court with whom he was involved. I expect him to appeal this ruling as well as he continues an effort to abuse the corporation he led and the law.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Newly Acquired Auto Not Insured if Insurer not Notified Within 30 Days of Acquisition
Post 5244
Read the full article at https://www.linkedin.com/pulse/failure-respond-complaint-deemed-culpable-willful-zalma-esq-cfe-yqbzc, see the video at and at and https://zalma.com/blog plus more than 5200 posts.
Insured’s Error Eliminated Coverage
In Selective Insurance Company Of South Carolina v. KS Automotive, LLC d/b/a KS Automotive, et al., No. 2:25-cv-02985-JDW, United States District Court, E.D. Pennsylvania (December 8, 2025) Selective Insurance Company of South Carolina issued a commercial auto insurance policy to KS Automotive LLC (and its related entities) for the period September 27, 2023, to September 27, 2024. The policy covered three types of vehicles: those specifically listed, hired vehicles, and non-owned vehicles used in KS Auto’s business. If KS Auto acquired a new vehicle, it had to ...
Detail Charging Defendant for Fraud is Sufficient
Post 5242
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Charges that Advises the Defendant of the Crime Cannot be Set Aside
In United States Of America v. Lourdes Navarro, AKA Lulu, No. 25-661, United States Court of Appeals, Ninth Circuit (December 4, 2025) Lourdes Navarro appealed the district court’s denial of her motion to dismiss the indictment and enter final judgment was in error.
FACTUAL BACKGROUND
The indictment alleged that insurers reimburse only for medically necessary services. Navarro performed unnecessary respiratory pathogen panel (RPP) tests on nasal swabs collected from asymptomatic individuals for COVID-19 screening.
Navarro billed over $455 million to insurers for those additional RPP tests that she knew to be medically unnecessary. These allegations constituted a plain, concise, and definite written ...
Louisiana Statute Prevents Enforcement of Contract Term Requiring Arbitration of Disputes
Post 5241
Read the full article at https://www.linkedin.com/pulse/international-convention-requiring-enforcement-award-barry-sttdc, see the video at and at and at https://zalma.com/blog plus more than 5200 posts.
In Town of Vinton v. Indian Harbor Insurance Company, Nos. 24-30035, 24-30748, 24-30749, 24-30750, 24-30751, 24-30756, 24-30757, United States Court of Appeals, Fifth Circuit (December 8, 2025) municipal entities including the Town of Vinton, et al sued domestic insurers after dismissing foreign insurers with prejudice. The insurers sought arbitration under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention”) but the court held Louisiana law — prohibiting arbitration clauses in such policies—controls, as the Convention does not apply absent foreign parties who ...
Zalma’s Insurance Fraud Letter
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ZIFL Volume 29, Issue 24
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Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/
Zalma’s Insurance Fraud Letter
Merry Christmas & Happy Hannukah
Read the following Articles from the December 15, 2025 issue:
Read the full 19 page issue of ZIFL at ...
The Professional Claims Handler
Post 5219
Posted on October 31, 2025 by Barry Zalma
An Insurance claims professionals should be a person who:
Can read and understand the insurance policies issued by the insurer.
Understands the promises made by the policy.
Understand their obligation, as an insurer’s claims staff, to fulfill the promises made.
Are competent investigators.
Have empathy and recognize the difference between empathy and sympathy.
Understand medicine relating to traumatic injuries and are sufficiently versed in tort law to deal with lawyers as equals.
Understand how to repair damage to real and personal property and the value of the repairs or the property.
Understand how to negotiate a fair and reasonable settlement with the insured that is fair and reasonable to both the insured and the insurer.
How to Create Claims Professionals
To avoid fraudulent claims, claims of breach of contract, bad faith, punitive damages, unresolved losses, and to make a profit, insurers ...
The History Behind the Creation of a Claims Handling Expert
The Insurance Industry Needs to Implement Excellence in Claims Handling or Fail
Post 5210
This is a change from my normal blog postings. It is my attempt. in more than one post, to explain the need for professional claims representatives who comply with the basic custom and practice of the insurance industry. This statement of my philosophy on claims handling starts with my history as a claims adjuster, insurance defense and coverage lawyer and insurance claims handling expert.
My Training to be an Insurance Claims Adjuster
When I was discharged from the US Army in 1967 I was hired as an insurance adjuster trainee by a professional and well respected insurance company. The insurer took a chance on me because I had been an Army Intelligence Investigator for my three years in the military and could use that training and experience to be a basis to become a professional insurance adjuster.
I was initially sat at a desk reading a text-book on insurance ...
