Orthofix International N.V. (“Orthofix”) entered into a consent to final judgment with the SEC and a deferred prosecution agreement with the DOJ to resolve FCPA violations by its Mexican subsidiary. Although the DOJ enforcement action involved a criminal information which remains sealed until a plea is entered in open court, the deferred prosecution agreement indicates that the company was charged with one count of violating the FCPA’s internal controls provisions. The SEC’s civil complaint alleges violations of the FCPA’s books and records and internal controls provisions.

Conduct

  • Orthofix is a Texas-based orthopedic medical device company.
  • Promeca S.A. de C.V. (“Promeca”), Orthofix’s Mexican subsidiary, bribed officials at Mexico’s government health care and social service provider, Instituto Mexicano del Seguro Social (“IMSS”) in order to secure lucrative sales contracts from IMSS hospitals.
  • From 2003 to 2010, Promeca paid bribes totaling approximately $317,000 to Mexican officials. These bribes, internally referred to as “chocolates,” generated a net profit of nearly $5 million. Promeca falsely recorded the bribes as cash advances and falsified its invoices. When the bribes increased, Promeca falsely recorded them as promotional training costs. Some of the gifts intended to influence IMSS employees included vacation packages, laptop computers, televisions, appliances, and in one case, the lease of a Volkswagen Jetta. Eventually, after learning of the bribery, Orthofix self-reported it to the SEC. The company took corrective action including firing the Promeca executives who orchestrated the bribery scheme.
  • The SEC complaint alleged that Orthofix “failed to implement adequate internal control to prevent the bribery or to ensure that transactions were properly recorded. Orthofix failed to implement an FCPA compliance and training program commensurate with the extent of its international operations and particularly its ownership of Promeca… Further, even though Orthofix knew that Promeca’s training and promotional expenses were often over budget, it did nothing to act on the red flag.”

Penalties

  • According to the SEC’s release, Orthofix agreed to pay $4,983,644 in disgorgement of profits and more than $242,000 in prejudgment interest. The final judgment would permanently enjoin the company from violating the books and records and internal control provisions of the FCPA. Under the terms of the agreement, Orthofix also agreed to monitor its FCPA compliance program and issue reports to the SEC over a two-year period.
  • In its deferred prosecution agreement with the DOJ, Orthofix agreed to pay a $2.22 million penalty and to report to the DOJ annually during the term of the agreement regarding remediation and implementation of the compliance measures. The DOJ has agreed not to pursue any criminal charges against the company regarding this matter if the company complies with the terms of the agreement for a period of three years.

Additionally, neither the SEC settlement nor the deferred prosecution agreement require Orthofix to appoint an independent external compliance monitor.

We thank Squire Sanders summer associate Cristina Sanchez for contributing to this post.