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Medical Device Makers Face FCPA Investigation

The Securities and Exchange Commission is investigating possible violations of the U.S. Foreign Corrupt Practices Act by Biomet Inc., Stryker Corp., Zimmer Holdings Inc., Smith & Nephew plc and Medtronic Inc. They’ve all made announcements about the SEC’s action and deny any violations. The companies make replacement implants for knees, hips and the spine and control most of the U.S. market.

Last month, four of them settled charges that they paid kickbacks to induce U.S. doctors to buy their products. Medtronic wasn’t part of that case, but Depuy Orthopedics (part of Johnson & Johnson) also joined the settlement. Together, Biomet, Zimmer, Smith & Nephew and Depuy paid penalties of $310 million. Stryker was part of the settlement but wasn’t required to pay anything.

Since resolving the domestic kickback charges, the companies have been under the surveillance of plenty of high-profile legal talent. Their deferred prosecution agreements with the Department of Justice required appointing compliance monitors, and here’s the impressive line up: former U.S. Attorney General John Ashcroft for Zimmer (which paid $169.5 million for the settlement), former U.S. Attorney for the Central District of California Debra Yang for Depuy (which is not named yet in the SEC’s FCPA investigation), former New Jersey Attorney General David Samson for Smith & Nephew, former U.S. Attorney for the Southern District of New York in Manhattan David N. Kelly for Biomet, and former counsel to the Federal Trade Commission during the Reagan Administration John Carley for Stryker.

Curiously, the companies’ deferred prosecution agreements — although packed with legal details — focus entirely on their future behavior in the U.S. domestic market. There’s no mention of overseas bribery or the Foreign Corrupt Practices Act. That big gap, we think, is likely to close soon. Which may result in the A-Team monitors expanding their roles to include audits of the companies’ compliance with the anti-bribery and books-and-records provisions of the FCPA.

Zimmer, Stryker, Medtronic and Smith & Nephew are public companies. Biomet was bought last month by Blackstone Group, Goldman Sachs Capital Partners, KKR and TPG Capital.

View all of the DOJ’s September 27, 2007 Deferred Prosecution Agreements and Related Documents Here.

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