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12-13346-alg

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PREET BHARARA United States Attorney Southern District of New York By: MICHAEL J. BYARS Assistant United States Attorney 86 Chambers Street, 3rd Floor New York, New York 10007 Telephone: (212) 637-2793 Facsimile: (212) 637-2717 E-mail: michael.byars@usdoj.gov UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK In re: K-V DISCOVERY SOLUTIONS, INC., et al., Debtors. UNITED STATES OF AMERICA, Adv. Pro. No. 12 Civ. ______ Plaintiff, COMPLAINT v. K-V PHARMACEUTICAL COMPANY, Defendant. Chapter 11 Case No. 12-13346 (ALG) (Jointly Administered)

Plaintiff the United States of America (the United States), by its attorney, Preet Bharara, United States Attorney for the Southern District of New York, pursuant to sections 1141(d)(6) and 523(a) of title 11 of the United States Code (the Bankruptcy Code), and Rule 7001 of the Federal Rules of Bankruptcy Procedure, alleges upon information and belief as follows: JURISDICTION AND VENUE 1. This Court has jurisdiction over this adversary proceeding pursuant to 28

U.S.C. 157 and 1334. Venue of this proceeding in this district is proper pursuant to 28 U.S.C.

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1408 and 1409. 2. This adversary proceeding is related to Chapter 11 Case No. 12-13346 (ALG)

pending in the United States Bankruptcy Court for the Southern District of New York. 3. This is a core proceeding within the meaning of 28 U.S.C. 157(b). The United

States consents to entry of final judgment or orders by the Bankruptcy Court if it is determined that the Bankruptcy Court, absent consent of the parties, cannot enter final judgments or orders consistent with Article III of the United States Constitution. 4. The statutory predicates for the relief sought herein are sections 1141(d)(6) and

523 of the Bankruptcy Code. THE PARTIES 5. 6. Plaintiff is the United States of America. Defendant K-V Pharmaceutical Corporation (KV) is a Delaware corporation

with its principal place of business located at 2280 Schuetz Road, St. Louis, MO 63146. BACKGROUND The Criminal Case in the Eastern District of Missouri 7. On March 2, 2010, Ethex Corporation (Ethex), a wholly owned subsidiary of

KV, pleaded guilty to two felony charges relating to Ethexs failure to make two field alert reports to the Food and Drug Administration (FDA) regarding the discovery of oversized drug tablets. See United States v. Ethex Corp., No. 10 Cr. 117 (E.D. Mo.) (Information filed March 2, 2010). Among other conditions in the Judgment, the Court imposed a $23,437,382 criminal fine, payable in four installments, without interest. The first payment of 10% of the fine, $2,343,738, was paid in full. The payment schedule was later modified by the parties, with the approval of

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the Court. Under the modified payment schedule, three installments remain to be paid by KV as follows: Date of payment: December 15, 2012 June 15, 2013 December 15, 2013 Total unpaid balance 8. Amount: $4,017,624. $5,027,515. $7,140,505. $16,185,644. (the Criminal Fine)

The plea agreement also provided, among other things, that the fine would not be

dischargeable in the event that Ethex filed for bankruptcy. The Qui Tam Action in the District of Massachusetts 9. On August 29, 2002, a relator filed an action in the United States District Court

for the District of Massachusetts captioned United States ex rel. Constance Conrad, et al. v. Abbott Laboratories, Inc., et al., No. 02 Civ. 11738, under the qui tam provisions of the False Claims Act, 31 U.S.C. 3730(b) (the FCA Action). The United States alleged in the FCA Action that Ethex had obtained federal payments for drugs by misrepresenting the regulatory status of the drugs. The FCA Action was subsequently resolved as to KV and Ethex pursuant to a settlement agreement between the United States, the relator and KV, under which KV agreed to make certain payments totaling approximately $17 million (the Settlement Agreement) through September 2016. The Settlement Agreement further provided that, in the event that KV filed for bankruptcy within ninety-one days of the effective date of the Settlement Agreement or any payment thereunder, if KVs obligations under the Settlement Agreement were avoided, KV would not contest that the United States has a valid claim against KV in the amount of $51 million.

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RESERVATION OF RIGHTS It is the position of the United States that it is not required to file an adversary proceeding to obtain a determination as to the non-dischargeability of the foregoing debts owing to the United States, and in filing this adversary proceeding, the United States does not waive any argument, and specifically reserves its right to argue, that the United States is not required to obtain a court determination that these debts are exempt from discharge. The United States files this adversary proceeding solely to preserve its rights in the event that the court determines it is required affirmatively to file an adversary proceeding in order to obtain an exemption to discharge. REQUEST FOR RELIEF WHEREFORE, the United States respectfully requests that this Court enter judgment: (a) Declaring that the Criminal Fine is non-dischargeable pursuant to sections

523(a)(7) and 1141(d)(6) of the Bankruptcy Code; (b) Declaring that the United States claim under the Settlement Agreement is non-

dischargeable pursuant to sections 523(a)(2) and 1141(d)(6) of the Bankruptcy Code; and (c) Awarding the United States such other relief as the Court deems just and proper.

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Date: November 26, 2012 New York, New York Respectfully submitted, PREET BHARARA United States Attorney By: /s/ Michael J. Byars MICHAEL J. BYARS Assistant United States Attorney 86 Chambers Street, 3rd Floor New York, New York 10007 Telephone: (212) 637-2793 Facsimile: (212) 637-2717 E-mail: michael.byars@usdoj.gov

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