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In the Matter of Orthofix International N.V.

 
:
Orthofix International N.V.
:
SEC Civil
:
February 10, 2017
:
In the Matter of Orthofix International N.V.
:
In the Matter of Orthofix International N.V., Admin. Pro. File No. 3-17800 (2017).
:
The SEC's enforcement action against Orthofix is the second time the company has been charged with violating the FCPA.
:
Healthcare-Medical Devices
:
Brazil
:
2011; 2012; 2013
:
Doctors at Brazilian state-owned hospitals.
:
Orthofix International N.V. is a limited liability company formed under the laws of Curacao with its principal headquarters in Lewisville, Texas. Orthofix is a diversified medical device company that develops and sells surgical and non-surgical medical products to medical professionals in various countries around the world. Orthfix’s common stock is registered with the Commission and trades on the Nasdaq Global Select Market.

According to the SEC, between 2011 and 2013, senior officials at Orthofix’s Brazilian subsidiary (“Orthofix Brazil”) employed at least four schemes with third-party commercial representatives and distributors to make improper payments to doctors employed at government-owned hospitals to induce those doctors to use Orthofix products. The four schemes are summarized below.

In the first scenario, certain commercial representatives allegedly made arrangements to pay doctors a specific amount, typically between 20% and 25% of the sales price, in exchange for using Orthofix products. According to the SEC, when Orthofix Brazil later paid those commercial representatives’ commissions (approximately between 33% and 43% of the sales price) for the sales, the commercial representatives used a portion of the commission to pay the doctors the agreed upon amounts.

In the second scenario, a company related to a commercial representative sent Orthofix Brazil false invoices for services that were never performed. The SEC claims that Orthofix Brazil officials later approved the fabricated invoices and instructed Orthofix employees to classify the payments as “administrative expenses.” The funds disbursed in connection with the approved invoices were later allegedly used to make improper payments to certain government doctors.

In the third scenario, Orthofix Brazil allegedly provided high discounts (up to 70%) on the sale of certain products to third-party distributors which later resold the products to government hospitals at a mark-up. According to the SEC, the distributors then used a portion of the profits generated by the discount to make improper payments to government doctors.

In the fourth scenario, Orthofix Brazil allegedly made payments to a third-party distributor for services that were never rendered. According to the SEC, those payments were inaccurately described in the company’s books and records as “consulting for sales” payments when, in fact, the payments to the distributor were made to facilitate improper payments to government doctors.

On January 18, 2017, the SEC announced that it had resolved an FCPA enforcement action against Orthofix for violations of the FCPA’s books-and-records and internal controls provisions. According to the Commission’s cease-and-desist order, Orthofix was required to pay a civil penalty of $6,119,375 and engage an independent compliance monitor for a period of one year. The Commission’s enforcement action marked the second time that Orthofix has been accused of violating the FCPA. In 2012, the SEC brought an FCPA enforcement action against the company in connection with Orthofix’s Mexican operations.
:
Books and records (Issuer), Internal controls (Issuer)
:
Cease and Desist, Civil penalty, Compliance Monitor, Disgorgement, Prejudgment Interest
:
Orthofix was ordered to pay disgorgement of $2,928,000, prejudgment interest of $263,375, and a civil penalty of $2,928,000.
:
6,119,375
:
0
:
Issuer
:
U.S.
:
United States
:
Contract Procurement/Retention
:
Not stated.
:
Cash
:
Customs Broker or Agent/Consultant, Sales Agent/Consultant, Subcontractor
:
Not stated.
:
Brazil
:
No
:
No