Biomet Inc. today became the latest medical device maker to settle FCPA offenses.
The Warsaw, Indiana company will pay a criminal fine of $17.3 million in its settlement with the DOJ, and $5.5 million in disgorgement of profits and pre-judgment interest to the SEC.
The enforcement action against Biomet is part of the government’s industry-wide investigation into bribes by orthopedic device makers to doctors and administrators employed by overseas state-owned hospitals.
Last month, U.K.-based medical device maker Smith & Nephew plc agreed to pay $22.2 million for FCPA offenses committed by its U.S. and German subsidiaries.
Johnson & Johnson paid $70 million last year to settle criminal and civil FCPA charges for bribes to public-sector doctors in Greece. Its subsidiary DePuy Inc. was charged in a criminal complaint with conspiracy and violations of the FCPA. A former DePuy executive in the U.K., Robert John Dougall, was jailed for a year after he pleaded guilty in a London court to making £4.5 million in corrupt payments to Greek medical professionals.
In today’s settlement with the DOJ, Biomet’s deferred prosecution agreement also required the company to cooperate in the ongoing industry investigation, and retain a compliance monitor for 18 months.
Biomet bribed doctors at government hospitals in Argentina, Brazil, and China from 2000 to 2008, U.S. authorities said. It paid more than $1.5 million and disguised the payments as commissions, royalties, consulting fees, and scientific incentives.
Biomet traded on Nasdaq when most of the offenses occurred. In 2007, it was acquired for $11.4 billion by a consortium of private equity firms that included The Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts & Co., and TPG.
The SEC charged the company with antibribery, books and records, and internal controls violations. It said executives and internal auditors at Biomet’s Indiana headquarters were aware of the payments by 2000 but failed to stop them.
Sales in China were made through a distributor who was known to provide publicly-employed doctors with money and travel. In 2001, he sent an e-mail to Biomet that said:
[Doctor] is the department head of [public hospital]. [Doctor] uses about 10 hips and knees a month and it’s on an uptrend, as he told us over dinner a week ago. …Many key surgeons in Shanghai are buddies of his. A kind word on Biomet from him goes a long way for us. Dinner has been set for the evening of the 24th. It will be nice. But dinner aside, I’ve got to send him to Switzerland to visit his daughter.
Biomet also sponsored travel for 20 Chinese surgeons in 2007 to Spain, the SEC said, where a substantial part of the trip was devoted to sightseeing and other entertainment.
Biomet, Smith & Nephew, and Johnson & Johnson disclosed FCPA investigations during 2007, along with Stryker Corp., Zimmer, and Medtronic; Wright Medical reported a similar investigation in June 2008.
The SEC said ’employees and managers at all levels of the parent company and the subsidiaries were involved along with the distributors who sold Biomet’s products. Biomet’s compliance and internal audit functions failed to stop the payments to doctors even after learning about the illegal practices.’
‘Biomet’s misconduct came to light because of the government’s proactive investigation of bribery within the medical device industry,’ Kara Novaco Brockmeyer, Chief of the SEC’s Enforcement Division’s FCPA Unit, said. ‘A company’s compliance and internal audit should be the first line of defense against corruption, not part of the problem.’
View the DOJ’s March 26, 2012 release here.
View the SEC’s Litigation Release No. 22306 and Accounting and Auditing Enforcement Release No. 3374 / (both dated March 26, 2012) in Securities and Exchange Commission v. Biomet, Inc., Civil Action No. 1: 12-CV-00454 (D.D.C.)(RMC) here.
Download the SEC’s civil complaint against Biomet here.
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