California-based SciClone Pharmaceuticals will pay $12.8 million to settle SEC charges that it violated the Foreign Corrupt Practices Act when employees in China pumped up sales for five years by making improper payments to professionals employed at state health institutions.
SciClone employees gave money, gifts, travel, golf games, and lavish hospitality to China customers and decision makers.
The SEC settled the case through an internal administrative order and didn’t go to court.
SciClone consented to the SEC’s order without admitting or denying the findings.
It agreed to pay a $2.5 million penalty, along with $9.426 million in disgorgement of profits plus $900,000 in prejudgment interest.
SciClone said in a statement Thursday that the Department of Justice “has also completed its related investigation and has declined to pursue any action.”
The company said in the statement that it has hired Lazard as its financial advisor to evaluate “strategic alternatives.”
More than 90 percent of SciClone’s revenues are generated from China sales of its drugs and related products.
In August 2005 and for some years after, the SEC said, SciClone sponsored surgical VIP clients including several hospital presidents at the annual Qingdao Beer Festival. There was golf in the morning and beer-drinking in the evening.
In February 2007, SciClone gave VIP clients vacations to Anji, China.
In November 2007, a sales representative recruited a VIP client by paying for family vacations and regular family dinners through an employee expense account. The gifts brought in a nearly four-fold sales increase to the VIP account, the sales rep said.
Various SciClone managers in China knew about the schemes for at least five years and “condoned” them, the SEC said.
“During this period,” the SEC said, “SciClone also failed to devise and maintain a sufficient system of internal accounting controls and lacked an effective anti-corruption compliance program.”
In 2007, SciClone submitted a license application to the State Food and Drug Administration for a new medical device product, and had a renewal pending for its largest drug product.
SciClone hired a well-connected “regulatory affairs specialist,” the SEC said.
The specialist arranged trips for two China officials to an academic conference in Greece at SciClone’s expense. “The conference was solely related to the new medical device,” the SEC said.
One of the officials oversaw new product approvals; the other decided on renewals for existing licensed products.
When the officials couldn’t get travel visas in time to attend the conference in Greece, SciClone’s specialist instead gave them “at least $8,600 in lavish gifts,” the SEC said.
SciClone falsely recorded the related transactions in its books and records as legitimate business expenses — such as sponsorships, travel and entertainment, conferences, honoraria, and promotion expenses.
The SEC’s order found that SciClone violated the FCPA’s anti-bribery, internal controls, and books-and-records provisions.
“SciClone has taken steps to improve its internal accounting controls and to create a dedicated compliance function,” the SEC said Thursday.
These include . . . (1) hiring a compliance officer for its China operations; (2) undertaking an extensive review of the policies and procedures surrounding employee travel and entertainment reimbursements; (3) substantially reducing the number of suppliers providing third-party travel and event planning services; (4) improving its policies and procedures around third-party due diligence and payments; (5) incorporating anti-corruption provisions in its third-party contracts; (6) providing anti-corruption training to its third-party travel and event planning vendors; (7) disciplining employees (and their managers) who violate SciClone’s policies; and (8) creating an internal audit department and compliance department.
SciClone agreed to give the SEC status reports for the next three years about its remediation efforts and its new anti-corruption compliance measures.
SciClone Pharmaceuticals trades on the NASDAQ Global Select Market under the symbol SCLN.
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The SEC’s Securities Exchange Act of 1934 Release No.77058, Accounting and Auditing Enforcement Release No. 3739, and Administrative Proceeding File No.3-17101 (all dated February 4, 2016) In the Matter of
SciClone Pharmaceuticals, Inc. are here (pdf).
Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.