BIOMET INC., CHARGED BY SEC WITH BRIBING DOCTORS IN THREE COUNTRIES

The following excerpt is from a Securities and Exchange Commission e-mail:
Washington, D.C., March 26, 2012 — The Securities and Exchange Commission today charged Warsaw, Ind.-based medical device company Biomet Inc. with violating the Foreign Corrupt Practices Act (FCPA) when its subsidiaries and agents bribed public doctors in Argentina, Brazil, and China for nearly a decade to win business.

Biomet, which primarily sells products used by orthopedic surgeons, agreed to pay more than $22 million to settle the SEC’s charges as well as parallel criminal charges announced by the U.S. Department of Justice today. The charges arise from the SEC and DOJ’s ongoing proactive global investigation into medical device companies bribing publicly-employed physicians.

The SEC alleges that Biomet and its four subsidiaries paid bribes from 2000 to August 2008, and 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,” said Kara Novaco Brockmeyer, Chief of the Enforcement Division’s Foreign Corrupt Practices Act Unit. “A company’s compliance and internal audit should be the first line of defense against corruption, not part of the problem.”

According to the SEC’s complaint filed in federal court in Washington D.C., employees of Biomet Argentina SA paid kickbacks as high as 15 to 20 percent of each sale to publicly-employed doctors in Argentina. Phony invoices were used to justify the payments, and the bribes were falsely recorded as “consulting fees” or “commissions” in Biomet’s books and records. Executives and internal auditors at Biomet’s Indiana headquarters were aware of the payments as early as 2000, but failed to stop it.

The SEC alleges that Biomet’s U.S. subsidiary Biomet International used a distributor to bribe publicly-employed doctors in Brazil by paying them as much as 10 to 20 percent of the value of their medical device purchases. Payments were openly discussed in communications between the distributor, Biomet International employees, and Biomet’s executives and internal auditors in the U.S. For example, a February 2002 internal Biomet memorandum about a limited audit of the distributor’s books stated:

Brazilian Distributor makes payments to surgeons that may be considered as a kickback. These payments are made in cash that allows the surgeon to receive income tax free. …The accounting entry is to increase a prepaid expense account. In the consolidated financials sent to Biomet, these payments were reclassified to expense in the income statement.

According to the SEC’s complaint, two additional subsidiaries – Biomet China and Scandimed AB – sold medical devices through a distributor in China who provided publicly-employed doctors with money and travel in exchange for their purchases of Biomet products. Beginning as early as 2001, the distributor exchanged e-mails with Biomet employees that explicitly described the bribes he was arranging on the company’s behalf. For example, one e-mail stated:

[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.
The SEC alleges that some e-mails described the way that vendors would deliver cash to surgeons upon completion of surgery, and others discussed the amount of payments. The distributor explained in one e-mail that 25 percent in cash would be delivered to a surgeon upon completion of surgery. Biomet sponsored travel for 20 Chinese surgeons in 2007 to Spain, where a substantial part of the trip was devoted to sightseeing and other entertainment.

Biomet consented to the entry of a court order requiring payment of $4,432,998 in disgorgement and $1,142,733 in prejudgment interest. Biomet also is ordered to retain an independent compliance consultant for 18 months to review its FCPA compliance program, and is permanently enjoined from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934. Biomet agreed to pay a $17.28 million fine to settle the criminal charges.

The SEC’s investigation was conducted by Brent S. Mitchell with Tracy L. Price of the Enforcement Division’s FCPA Unit and Reid A. Muoio. The SEC acknowledges the assistance of the U.S. Department of Justice’s Fraud Section and the Federal Bureau of Investigation. The investigation into bribery in the medical device industry is continuing.

THREE NOBLE CORPORATE EXECUTIVES CHARGED BY SEC WITH BRIBERY

The following excerpt is from the SEC website:
March 14, 2012
SEC Charges Three Executives At Noble Corporation With Bribing Customs Officials In Nigeria
On February 24, 2012, the Securities and Exchange Commission today charged three Noble Corporation executives with violating the Foreign Corrupt Practices Act (FCPA) by participating in a bribery scheme to obtain illicit permits for oil rigs in Nigeria in order to retain business under lucrative drilling contracts.

The SEC alleges that former Noble CEO Mark A. Jackson along with James J. Ruehlen, who is the current Director and Division Manager of Noble’s subsidiary in Nigeria, bribed customs officials to process false paperwork purporting to show the export and re-import of oil rigs, when in fact the rigs never moved. The scheme was designed to save Noble Corporation from losing business and incurring significant costs associated with exporting rigs from Nigeria and then re-importing them under new permits. Bribes were paid through a customs agent for Noble’s Nigerian subsidiary with Jackson and Ruehlen’s approval.

The SEC separately charged Thomas F. O’Rourke, who was a former controller and head of internal audit at Noble. The SEC alleges that O’Rourke helped approve the bribe payments and allowed the bribes to be booked improperly as legitimate operating expenses for the company. O’Rourke agreed to settle the SEC’s charges and pay a penalty.
Noble Corporation was charged with FCPA violations as part of a sweep of the oil services industry in late 2010. The company cooperated with investigators and agreed to pay more than $8 million to settle civil and criminal cases.

According to the SEC’s complaint against Jackson and Ruehlen filed in U.S. District Court for the Southern District of Texas, the executives who perpetrated the scheme worked at Noble and Noble’s Nigerian subsidiary Noble Drilling (Nigeria) Ltd, whose rigs operated in Nigeria on the basis of temporary import permits granted by the Nigeria Customs Service (NCS). These temporary permits allowed the rigs to be in the country for a one-year period. NCS had the discretion to grant up to three extensions lasting six months each, after which the rigs were required to be exported and re-imported under a new temporary permit or be permanently imported with the payment of sizeable duties.
The SEC alleges that Jackson and Ruehlen had a role in arranging, facilitating, approving, making, or concealing the bribe payments to induce Nigerian customs officials to grant new temporary permits illegally and favorably exercise or abuse their discretion to grant permit extensions. Together, Jackson and Ruehlen participated in paying hundreds of thousands of dollars in bribes to obtain about 11 illicit permits and 29 permit extensions. Jackson approved the bribe payments and concealed the payments from Noble’s audit committee and auditors. Ruehlen prepared false documents, sought approval for the bribes, and processed and paid the bribes.

The SEC’s complaint against Jackson and Ruehlen alleges they directly violated the anti-bribery provisions of Section 30A of the Securities Exchange Act and the internal controls and false records provisions of Section 13(b)(5) and Rule 13b2-1 of the Exchange Act. The complaint alleges that they aided and abetted Noble’s violations of Section 30A and the books and records and internal controls provisions of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. The complaint further alleges that Jackson directly violated Exchange Act Rule 13b2-2 by misleading auditors and Exchange Act Rule 13a-14 by signing false certifications of Noble’s financial statements. He also is liable as a control person under Section 20(a) of the Exchange Act for violations of the anti-bribery, books and records, and internal controls provisions by Noble, Ruehlen, and O’Rourke.

The SEC’s complaint against O’Rourke alleges that he aided and abetted Noble’s violations of the anti-bribery, books and records, and internal controls provisions of the Exchange Act, and that he directly violated the internal controls and false records provisions of the Exchange Act. Without admitting or denying the SEC’s allegations, O’Rourke consented to entry of a court order requiring him to pay a $35,000 penalty and permanently enjoining him from further violations of Sections 13(b)(2)(A), 13(b)(2)(B), 13(b)(5) and 30A of the Exchange Act and Rule 13b2-1.