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Medical Device Maker Orthofix Resolves Foreign Bribery Allegations With SEC, DOJ

Wednesday, July 25, 2012

By Maria Lokshin  

Texas-based medical device company Orthofix International NV agreed to pay $5.2 million to settle a Securities and Exchange Commission suit in the U.S. District Court for the Eastern District of Texas over alleged bribes paid to Mexican officials by one of the company's subsidiaries in violation of the Foreign Corrupt Practices Act, the SEC announced July 10 (SEC v. Orthofix International NV, E.D. Tex., No. 12-00419, 7/10/12).

Orthofix disclosed in an 8-K filing the same day that it agreed to pay $2.22 million to resolve related allegations by the Department of Justice.

According to the SEC, Orthofix's Mexican subsidiary Promeca SA de CV paid “routine” bribes to officials at Mexico's government-owned health care and social services entity to score sales contracts with government hospitals. The bribes, known as “chocolates,” included cash and electronics and yielded roughly $5 million in profits for the company, the SEC said.

As the bribes grew larger, the SEC said Promeca disguised the payments as training and promotional expenses on company records. That put those costs “significantly over budget,” the agency said, but Orthofix “did very little” to address the “excessive spending.”

However, when the company discovered the bribes, it “immediately” reported the issue to the SEC and “implemented significant remedial measures.”

As part of the settlement, which is subject to court approval, the SEC said the company agreed to be enjoined from violating books and records and internal controls provisions of the FCPA. It also agreed to monitor its FCPA compliance program with reports to the SEC for two years.

Deferred Prosecution Agreement.

In its 8-K filing, Orthofix said that it entered into a deferred prosecution agreement with DOJ.

As part of the DPA, which has a term of three years, DOJ “has agreed not to pursue any criminal charges against the Company in connection with this matter if the Company complies with the terms of the DPA. The DPA takes note of the Company's self-reporting of this matter to the DOJ and the SEC, and of remedial measures, including the implementation of an enhanced compliance program, previously undertaken by the Company.”

Orthofix said the DPA provides that the company “shall continue to cooperate fully with the DOJ in any future matters related to corrupt payments, false books and records or inadequate internal controls. In that regard, the Company has represented that it has implemented and will continue to implement a compliance and ethics program designed to prevent and detect violations of the FCPA and other applicable anti-corruption laws.”

Orthofix said it will periodically report to the DOJ during the term of the DPA regarding such remediation and implementation of compliance measures.

In June, Orthofix agreed to pay the federal government nearly $42 million to resolve civil and criminal liability relating to sales of its bone growth stimulators Orthofix Spinal-Stim, Orthofix Cervical-Stim, and Orthofix Physio-Stim. That case included a payment of $34.2 million to settle False Claims Act allegations, and a payment of a $7.7 million criminal fine (6 MELR 398, 6/13/12).

Other Companies in the FCPA Net.

The Orthofix FCPA settlement follows other device companies that have resolved such cases with the government. In March, Biomet Inc. agreed to pay $17.2 million and enter into a deferred prosecution agreement with DOJ to resolve allegations of making bribes in China and Latin America (6 MELR 236, 4/4/12). Smith & Nephew in February entered into a deferred prosecution agreement with DOJ to resolve allegations of improper payments by the company and certain affiliates in violation of FCPA (6 MELR 99, 2/8/12).

And in 2011, Johnson & Johnson agreed to pay more than $70 million in fines, disgorgement, and interest to settle alleged violations of FCPA, including the payment of bribes to publicly employed health care providers in Greece, Poland, and Romania to induce them to buy medical devices and pharmaceuticals. J&J also entered into a deferred prosecution agreement (5 MELR 259, 4/20/11).

By Maria Lokshin  


A copy of the SEC's complaint is at http://www.sec.gov/litigation/complaints/2012/comp-pr2012-133.pdf. The agreement with the SEC and DOJ are on the company's investor relations site, http://ir.orthofix.com/index.cfm, under SEC filings (8-K).

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