Johnson & Johnson has agreed to pay more than $2.2bn (£1.37bn) to resolve allegations that it promoted powerful psychiatric drugs for unapproved uses in children, seniors and disabled patients.
The allegations include paying kickbacks to physicians and pharmacies to recommend and prescribe Risperdal and Invega, both anti-psychotic drugs, and Natrecor, which is used to treat heart failure.
The fraud settlement - one of the largest in US history - covers the marketing of the drugs over several years.
J&J and its subsidiary Janssen Pharmaceuticals promoted Risperdal for unapproved uses, including controlling aggression and anxiety in elderly dementia patients and treating behavioural disturbances in children and in individuals with disabilities, according to the complaint.
Attorney General Eric Holder said the US healthcare giant's conduct "recklessly put at risk" the health of children, dementia patients and others to whom the drug was prescribed at a time it was only approved by the US Food and Drug Administration (FDA) to treat schizophrenia.
Under FDA regulations, doctors may prescribe drugs for unapproved, or off-label, use. But pharmaceutical companies are allowed to market their drugs in the US only for FDA-approved uses.
The off-label marketing cost US government insurance programmes hundreds of millions of dollars in uncovered claims, the complaint said.
Mr Holder said: "These companies lined their pockets at the expense of American taxpayers, patients and the private insurance industry.
Johnson & Johnson makes a broad range of consumer products "They drove up costs for everyone in the health care system and negatively impacted the long term solvency of the central health care programmes like Medicare."
Mr Holder said Janssen's sales representatives "aggressively" promoted Risperdal to doctors and other prescribers who treated elderly dementia patients.
He also said Janssen targeted nursing home operators through a special "sales force".
J&J is to pay $485m in criminal fines and forfeiture and a total of $1.72bn in civil settlements with the federal government and the states.
Janssen pleaded guilty to the criminal charge of interstate promotion of Risperdal and will pay a total of $400m.
In separately filed civil complaints, the US government alleged that J&J and Janssen promoted Risperdal and Invega, a newer anti-psychotic drug, to doctors -and to nursing homes as a way to control behavioural disturbances in elderly dementia patients, children and people with mental disabilities.
Janssen knew Risperdal posed serious health risks for the elderly, including an increased risk of strokes, and for children, including the risk of elevated levels of prolactin, a hormone that can stimulate breast development and milk production, according to the complaints.
Anti-psychotic drugs are known for their sedative effects and are occasionally used to treat post-traumatic stress disorder, though its use is not approved by the FDA.
The civil settlement also resolves allegations that J&J and Janssen paid kickbacks to Omnicare, the nation's largest pharmacy specialising in dispensing drugs to nursing home patients.
Janssen is a part of Johnson & Johnson In addition, the civil settlement resolved allegations that J&J and another subsidiary, Scios, caused false claims to be submitted to federal health care programs for the heart failure drug Natrecor.
Scios allegedly marketed the drug for off-label uses. Intended for patients with severe heart failure, it was given to patients with less severe heart issues over weeks and months.
As part of the global settlement, J&J must undertake a major overhaul of its pharmaceutical business over five years supervised by the Health and Human Services inspector general.
The New Jersey-based company, which makes a broad range of consumer products, including Band-Aid bandages, Neutrogena soaps and Johnson's Baby Powder, said in a statement that it had cooperated with the government since the separate investigations began nearly a decade ago.
"Today's agreements resolve all related federal criminal and federal civil liabilities on these matters," the company said.
"The settlement of the civil allegations is not an admission of any liability or wrongdoing, and the company expressly denies the government's civil allegations."
Shares in Dow member J&J were down 0.6% at $92.80 in afternoon trading. Omnicare shares rose 1.1% to $55.80.
The agreement is the third-largest US settlement involving a drug company, and the latest in a string of legal actions against drug companies allegedly putting profits ahead of patients.
Most large pharmaceutical companies have had to pay major fines to the US government and various states over the past decade for alleged improper marketing of their medicines.
In 2010 Pfizer agreed to pay $2.3bn to settle allegations it improperly marketed 13 drugs, including kickbacks to healthcare providers.
Last year, Britain's GlaxoSmithKline agreed to pay $3bn to resolve criminal charges that it improperly targeted its Paxil depression treatment to children, sold its Wellbutrin antidepressant for unapproved uses and failed to inform US regulators of safety risks seen with its Avandia diabetes drug.
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