Lexington history: Lawyers stole millions from clients in diet drug settlement
Editor’s Note: As Lexington celebrates the 250th anniversary of its founding, the Herald-Leader and kentucky.com each day throughout 2025 will share interesting facts about our hometown. Compiled by Liz Carey, all are notable moments in the city’s history — some funny, some sad, others heartbreaking or celebratory, and some just downright strange.
On May 12, 2008, two Lexington attorneys went to court on the other side of the bench.
Prosecutors alleged William Gallion and Shirley Cunningham, Jr. committed federal crimes when they plundered the $200 million settlement provided to the state for the 440 victims in the case involving diet drug fen-phen.
Fen-phen was the common name for the combination of the drugs fenfluramine/phentermine that was marketed by American Home Products (AHP, later known as Wyeth) as a weight-loss drug in the 1990s. The drug was later found to have harmful side effects including pulmonary hypertension and heart valve damage.
Attorneys filed suit and eventually, AHP settled cases across the country for more than $13 billion.
In 1998, Gallion and Cunningham, along with Versailles attorney Melbourne Mills, Jr., filed a civil suit in Boone County on behalf of an estimated 440 plaintiffs against American Home Products, Bariatrics Inc., and Dr. Rex Duff, claiming damages because of fen-phen.
As part of their representation, the three attorneys entered into contractual fee agreements with each of their clients — Gallion agreed to a 33% fee of the total sum recovered, while Cunningham agreed to a 33.33% fee, and Mills agreed to no more than 30%.
The case was subsequently certified as a class action suit and settled in May 2001, when AHP agreed to pay the plaintiffs more than $200 million.
But according to the U.S. Department of Justice, the plaintiffs only received about $74.2 million of the settlement. Gallion, Cunningham and Mills split an estimated $74.8 million, while other attorneys received $30 million and the Kentucky Fund for Healthy Living received $20 million.
The Kentucky Fund for Healthy Living was a non-profit set up by the lawyers without their clients’ knowledge and ultimately was used to pay Gallion and Cunningham $5,300 a month, each.
According to the U.S. District Attorneys for the Eastern District of Kentucky, the two attorneys purposefully didn’t tell their clients the total amount of the settlement and then convinced each plaintiff to accept a low value for their claim and suggested the possibility of imprisonment to plaintiffs who revealed their settlement amount to others.
The two attorneys then wired millions of dollars from an escrow account set up for the AHP settlement amount to their own personal and business accounts.
Gallion and Cunningham were charged with eight counts of wire fraud and one count of conspiracy to commit wire fraud. In April 2009, the two were convicted on those charges, after an initial trial in 2008 ended in a hung jury.
“These defendants got caught with their hand in the cookie jar,” said Assistant United States Attorney E.J. Walbourn during closing arguments. “The linchpin of the United States’ prosecution are the misrepresentations, false truths and downright deceit by both defendants.”
When the scam was discovered and investigated by the Kentucky Bar Association, the attorneys made a second payment to their clients, but that second payment was still far below what the plaintiffs should have received. When the second payment was made, plaintiffs were told if there was any money left over, they could have it donated to a trust for charity.
That charity, the Kentucky Fund for Healthy Living, ultimately paid Gallion and Cunningham as directors of the trust.
The two were sentenced to prison — 25 years for Gallion and 20 years for Cunningham — and ordered to pay $127 million in restitution.
Gallion was among the nearly 1,500 inmates granted clemency by President Joe Biden in 2024. The Biden administration said the clemency orders were given to people who were already on home incarceration since the COVID-19 pandemic and had “successfully reintegrated into their families and communities.” Cunningham served his sentence and was released in March 2024.
Mills blamed his co-conspirators for lying to him about the settlement amount. He said he had no role in negotiating the settlement and that he was drinking a fifth of bourbon a day at the time and was too drunk to have participated in the scam. He was later acquitted of charges in the case, but subsequently disbarred.
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