02/07/2012 07:15:00 AM EST
The Continuing FCPA Inquiry into the Medical Device Industry
The DOJ and the SEC continue to conduct industry wide
FCPA investigations as part of the "new era" of enforcement. One such inquiry
focuses on the medical device industry. In connection with that inquiry the DOJ
and the SEC entered into settlements involving Smith & Nephew, a world wide
medical device manufacturer. See, e.g., SEC. v. Smith & Nephew Plc, Civil
Action No. 1;1-CV-00187 (D.D.C. Feb. 6, 2012).
Smith & Nephew plc is a U.K. based company whose ADRs
are traded in New York. One of its wholly owned subsidiaries is Smith &
Nephew, Inc., based in Memphis, Tenn. According to the court papers, from 1998
through 2008 Smith & Nephew, through two of its subsidiaries, authorized
the payment of bribes to Greek health care providers. The purpose of the
payments was to induce physicians to purchase products from the subsidiaries.
Beginning in 1997 the two subsidiaries crafted a scheme
through which they created a pool of funds to pay the Greek health care
providers. In the first part of the scheme the two subsidiaries sold their
devices to a Greek Distributor at full price. Discounts due the distributors,
and totaling over $19 million, were then funneled off to shell entities
controlled by the distributor. The money supposedly was to pay for marketing
services. There were no such services however. Rather, portions of the money
were used by the distributor to make the payments to the Greek health care
providers. Employees at the subsidiaries and the parent were aware of this
project, according to the papers.
To resolve the criminal inquiry the U.S. subsidiary
entered into a deferred prosecution agreement. Under that agreement the company
will pay a $16.8 million criminal fine. The company also agreed to implement a
rigorous system of internal controls and retain a compliance monitor for
eighteen months. The DOJ acknowledged the cooperation of the company, citing
its internal investigation and remedial efforts.
To settle with the SEC, the parent company consented,
without admitting or denying the allegations in the complaint, to the entry of
a permanent injunction prohibiting future violations of Exchange Act Sections
30A, 13(b)(2)(A) & 13(b)(2)(B). The company also agreed to retain an
independent consultant and pay disgorgement of $4,028,000 along with
prejudgment interest. The SEC releases do not mention cooperation.
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