Enforcement Action

 

Docket or Case Number:    12-cv-419

Court:    E.D. Texas

Initiation Date:    07/10/2012  Information

Prosecuting Agency:    US Securities and Exchange Commission

Name of Prosecuting Attorneys:   

  • Toby M. Galloway, SEC Fort Worth Regional Office
  • John W. Berry, SEC Los Angeles Regional Office

Assisting Agencies:    U.S. Department of Justice , Federal Bureau of Investigation

Type of Action:    SEC Federal Court Proceeding

Origin of the Proceeding:    Voluntary disclosure

Whistleblower:    Unknown

Case Status:    Resolved


Summary

Orthofix International, N.V. ("Orthofix N.V. "), was a multinational corporation principally involved in the design, development, manufacture, marketing and distribution of medical devices, and was incorporated in Curacao. Orthofix N.V. sold and distributed its products around the world from facilities in the United States, the United Kingdom, Italy, Mexico, and elsewhere. Orthofix N.V. employed over 1,500 people and maintained its corporate administrative offices in Lewisville, Texas. Orthofix N.V. had a class of securities registered with the SEC and was publicly traded on the NASDAQ.

Promeca S.A. de C.V. ("Promeca") was incorporated in Mexico and headquartered in Mexico City. Promeca was an indirectly wholly owned subsidiary of Orthofix N.V. that distributed Orthofix N.V.'s medical nails and fixators in Mexico. Promeca employed more than 50 employees, and its financial results were consolidated with Orthofix N.V.'s corporate financial statements, books, and records.

From around 2003 through around March 2010, with the knowledge of a senior manager at Orthofix Inc. ("Orthofix Executive A"), Promeca and its employees paid approximately $317,000 to Mexican officials, in return for agreements with Instituto Mexicano del Seguro Social ("IMSS"), a social-service agency of the Mexican government that provided public services to Mexican workers and their families, and its hospitals to purchase millions of dollars in Orthofix N.V. products. Promeca personnel colloquially referred to the illicit payments as "chocolates," a term commonly understood within Promeca and by Orthofix Executive A to describe a supplier's improper payments to purchasers of medical supplies and devices in exchange for an agreement to buy the supplier's goods. In all, the improper payments generated approximately $8.7 million in gross revenues and resulted in illicit net profits to Orthofix of about $4.9 million.

On July 10, 2012, the SEC filed a two count Complaint in the Eastern District of Texas against Orthofix N.V. alleging violations of the books & records and internal controls provisions of the FCPA. On the same date, the company entered into a Consent Agreement with the SEC. Under the terms of the agreement, Orthofix N.V. acknowledged that it had accepted responsibility for the conduct in a separate deferred prosecution agreement with the DOJ and agreed to be permanently enjoined from future violations of the FCPA, to pay disgorgement of $4,983,644 plus prejudgment interest of $242,057, and to issue periodic reports to the SEC for a term of two years on the implementation of its enhanced anti-corruption compliance policies and procedures.

Country(ies) involved:    Mexico

Sanction to Bribe Ratio:    $5,225,701 / $317,000 = 1648.49 %

Sanction to Revenue Ratio:    $5,225,701 / $8,700,000 = 60.07 %

Sanction to Profit Ratio:    $5,225,701 / $4,900,000 = 106.65 %

Number of Related Enforcement Actions (Including This Enforcement Action):    2

Country(ies) involved:    Mexico

Total $ Bribery Payments:    $317,000

Total $ Revenue Generated from Bribery:    $8,700,000

Total $ Profit Earned or Expenses Avoided from Bribery:    $4,900,000

Total $ Monetary Sanctions:    $7,445,701

Sanction to Bribe Ratio:    $7,445,701 / $317,000 = (2348.80 %)

Sanction to Revenue Ratio:    $7,445,701 / $8,700,000 = (85.58 %)

Sanction to Profit Ratio:    $7,445,701 / $4,900,000 = (151.95 %)

Name:    Orthofix International NV

Place of Incorporation:    Netherlands Antilles

HQ Country(ies):    United States

Entity Type:    Public Company

FCPA Claims:    Books & Records, Primary, Issuer (15 U.S.C. § 78m (b)(2)(A)) ; Internal Controls, Primary, Issuer (15 U.S.C. § 78m(b)(2)(B))

Related Claims:    N/A

Statutory Basis for FCPA Jurisdiction:    Issuer

Period of Bribery:   2003 - 2010

Total Bribery Payments:    $317,000

Total Revenue Generated from Bribery:    $8,700,000

Total Profit Earned or Expenses Avoided from Bribery:    $4,900,000

Country(ies) involved:    Mexico

Officials Potentially Influenced (Name; Title; Organization): 

  • Name N/A, Employees; IMSS Hospitals

Defendant-Related Entities Involved in the Misconduct:    Promeca S.A. de C.V. - Subsidiary

Third-Party Intermediary:    N/A

Type of Bribe:   Money, Automobile/Vehicle, Travel/Lodging

Cash, Wire or Check:    Cash (bills/coins/etc.)

Purpose of Bribe:    Obtain/retain business

TRANSACTION OVERVIEW
Payments in Mexico

Period of Bribery:   2003 – 2010

Total Bribery Payments:    $317,000

Total Revenue Generated from Bribery:    $8,700,000

Total Profit Earned or Expenses Avoided from Bribery:    $4,900,000

Country(ies) involved:    Mexico

Officials Potentially Influenced (Name; Title; Organization):  

  • Name N/A, Employees; IMSS Hospitals;

Defendant-Related Entities Involved in the Misconduct:    Promeca S.A. de C.V. - Subsidiary

Third Party Intermediary:    N/A

Type of Bribe:   Money, Automobile/Vehicle, Travel/Lodging

Cash, Wire or Check:    Cash (bills/coins/etc.)

Purpose of Bribe:    Obtain/retain business

Misconduct by Subsidiary?  Yes


Parent(s):   Orthofix International NV

Subsidiary:  Promeca S.A. de C.V.

  • Percentage of Ownership:    100.00 %
  • Direct or Indirect Ownership:    Indirect
  • Parent Had Knowledge of Sub’s Bribery?:    No
  • Subsidiary Expressly Alleged to Be Parent's Agent:    No
  • Parent Liable for Sub Misconduct?:    Yes

M&A Negotiated or Completed During Misconduct, Investigation, or Resolution?     No

Re: Orthofix International NV

  • Inadequate anti-corruption compliance policies, procedures, or program
  • Inadequate internal controls or auditing
  • Inadequate training of employees, agents, subsidiaries, or third parties

Mitigating Factors Referenced by the Government (Company Defendants):

Defendant Self-Report Cooperation Voluntary Remedial Measures Misconduct Limited to Low Level Individuals Other factors
Orthofix International NV    

Aggravating Factors Referenced by the Government (Company Defendants):

Defendant Insufficient Cooperation Insufficient Remedial Measures
Orthofix International NV    

Total Monetary Sanctions for the Action:    $5,225,701

Case Status:    Resolved


Disposition:    Consent Agreement

Date of Disposition:    07/10/2012

Orthofix International NV

—  Total Monetary Sanctions for Defendant:    $5,225,701

—  Compliance Obligation:    Yes

—  Reporting Obligation:    Self-reporting

—  Admission of Guilt/Acceptance of Responsibility:    Yes

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