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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Happy Law Day
ZIFL – Volume 30, Issue 9 – May 1, 2026
Read the full article at https://www.linkedin.com/pulse/zalmas-insurance-fraud-letter-may-1-2026-barry-zalma-esq-cfe-2tywc, see the video at at and at https://zalma.com/blog plus more than 5300 posts.
THE SOURCE FOR THE INSURANCE FRAUD PROFESSIONAL
ZIFL – Volume 30, Issue 9 – May 1, 2026
Zalma’s Insurance Fraud Letter (ZIFL) continues its 30th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year and is written by Barry Zalma.
DOJ Creates National Fraud Enforcement Division
Will the Feds Take on Insurance Fraud? Possibly as Part of a National Anti-Fraud Effort
On April 7, 2026, the Acting Attorney General, Todd Blanche, issued a memorandum establishing the Department of Justice National Fraud Enforcement Division (NFED). The memo describes an ambitious, but perhaps redundant, vision for this ...
When Abalone Died As a Result of Multiple Causes The Efficient Proximate Cause Requires Payment
Post number 5345
Read the full article at https://www.linkedin.com/pulse/efficient-proximate-cause-doctrine-saves-claim-barry-zalma-esq-cfe-yndlc, see the video at and at and at https://zalma.com/blog plus more than 5300 posts.
In American Abalone Farms, LLC v. Star Insurance Company et al., H052643, California Court of Appeals, Sixth District (April 27, 2026) the Court of Appeals dealt with an insurance coverage issue that required application of the efficient proximate cause doctrine.
FACTS
American Abalone Farms, LLC ("American Abalone" ) operates an aquaculture farm in Santa Cruz County, California, raising abalone in tanks. In August 2020, the CZU Lightning Complex Fires led to a prolonged power outage and road closures near the farm. As a result, the farm’s water pumps failed, causing the death of most of the ...
Breach of a Specific Condition Precedent Is a Complete Defense
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In United Services Automobile Association and State Farm Mutual Automobile Insurance Company v. Anthony Wenzell, 2026 CO 25 (Colo. Apr. 27, 2026) Anthony Wenzell was rear-ended in a car accident. He had a significant prior 2014 accident that required back surgery.
Wenzell claimed underinsured-motorist (UIM) benefits under three policies: (1) the tortfeasor’s liability policy, (2) his own primary UIM policy with State Farm, and (3) an excess UIM policy issued by USAA (under his brother’s policy, which contained an “other insurance” clause making USAA’s coverage excess over any collectible insurance).
After receiving the claims, both USAA and State Farm repeatedly requested that Wenzell execute comprehensive medical-release authorizations so they could obtain his full medical records and ...
It is Fraud to Make the Same Claim Twice
Read the full article at https://www.linkedin.com/pulse/fraud-make-same-claim-twice-barry-zalma-esq-cfe-c4g8c and at https://zalma.com/blog.
Chutzpah: After Being Paid for a New Roof Insured Makes Second Claim For Same Damages
Post number 5347
No One is Entitled to be Paid for the Same Loss Twice
In Mohammed Ali Khalili v. State Farm Lloyds, No. 14-25-00611-CV, Court of Appeals of Texas (April 30, 2026) Khalili maintained a State Farm Lloyds homeowners insurance policy for decades. In 2008 he filed a roof-damage claim; State Farm paid him to replace the entire roof (shingles and gutters). Khalili never replaced the roof and repeated his claim.
BACKGROUND
In 2021 he filed a second roof claim. State Farm’s inspectors found the roof “very old” with extensive non-storm-related damage. The claim was denied because (1) the damage did not exceed the deductible and (2) State Farm had already paid for a full roof replacement.
PROCEDURAL HISTORY
State Farm filed motion for summary...
It is Fraud to Make the Same Claim Twice
Read the full article at https://www.linkedin.com/pulse/fraud-make-same-claim-twice-barry-zalma-esq-cfe-c4g8c and at https://zalma.com/blog.
Chutzpah: After Being Paid for a New Roof Insured Makes Second Claim For Same Damages
Post number 5347
No One is Entitled to be Paid for the Same Loss Twice
In Mohammed Ali Khalili v. State Farm Lloyds, No. 14-25-00611-CV, Court of Appeals of Texas (April 30, 2026) Khalili maintained a State Farm Lloyds homeowners insurance policy for decades. In 2008 he filed a roof-damage claim; State Farm paid him to replace the entire roof (shingles and gutters). Khalili never replaced the roof and repeated his claim.
BACKGROUND
In 2021 he filed a second roof claim. State Farm’s inspectors found the roof “very old” with extensive non-storm-related damage. The claim was denied because (1) the damage did not exceed the deductible and (2) State Farm had already paid for a full roof replacement.
PROCEDURAL HISTORY
State Farm filed motion for summary...
What Must be Done after Notice of a Claim is Received by the Insurer
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A first party property policy does not insure property: it insures a person, partnership, corporation or other entity against the risk of loss of the property. Before an insured can make a claim for indemnity under a policy of first party property insurance the insured must prove that there was damage to property the risk of loss of which was insured by the policy. The obligation imposed on the insured ...
