by T. GormanPosted on Posted in SECActions

Orthofix International N.V. became the third medical device company to settle with FCPA enforcement officials this year as their sweep of the industry continues. Earlier Biomet Inc. and Smith & Nephew, Inc. also settled FCPA charges.

Orthofix is a limited liability company formed under the laws of Netherlands Antilles whose shares are registered for trading with the Commission. Promeca S.A. de C.V. is its wholly owned subsidiary, based in Mexico, City Mexico. The company provides surgical and non-surgical medical products for various market sectors.

From 2003 through 2010 Promeca is alleged to have repeatedly paid bribes to Mexican officials to obtain and retain sales contracts from Instituto Mexicano del Seguro Social or IMSS. To obtain the cash for the bribes at the beginning of the scheme, Promeca executives wrote checks to themselves which they claimed were cash advances. Later false receipts for various items were accounted for in the books and records of the subsidiary. As the bribes increased the executives had difficulty concealing them. Eventually they began falsely recording them as payments for promotional and training expenses. At one point the payments became so large that the parent company, Orthofix, launched an inquiry which apparently did not discover their true nature or halt them.

By 2008 IMSS began purchasing medical products under a new national tender system. Promeca continued to pay bribes to obtain the business but through three front companies controlled by IMSS. The $317,000 in improper payments yielded about $8.7 in gross revenues and about $4.9 in net profits. Over the course of the period about $80,050 in gifts were given to officials.

Orthofix did not have an effective FCPA compliance policy or FCPA related training, according to the complaint. While it did have a code of ethics and anti-bribery training for Promeca, the materials were only in English. Accordingly, it is unlikely employees understood them the SEC alleged.

The company self-reported when it discovered the scheme. Orthofix also implemented significant remedial measures. There is no allegation in the SEC complaint that the parent company was involved in the bribery scheme. The Commission’s complaint alleges violations of Exchange Act Section 13(b)(2)(A) and 13(b)(2)(B).

The company settled with the SEC and the DOJ. With the SEC, it consented to the entry of a permanent injunction prohibiting future violations of the sections cited in the complaint and agreed to pay $4,983,644 in disgorgement along with prejudgment interest. The company also agreed to certain undertakings according to report to the SEC on its compliance program for two years. SEC v. Orthofix International N.V., Case No. 3:12-CV-419 (E.D. Tx. Filed July 10, 2012).

To settle with the DOJ the company entered into a deferred prosecution agreement with a term of three years. It also agreed to pay a $2.2 million criminal fine.

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by T. GormanPosted on Posted in SECActions

The MF Global debacle is still unwinding. The question of using customer money which is supposed to be segregated for their protection remains a key issue. With no resolution near, the CFTC has another matter regarding a futures commission merchant and segregated funds.

This action involves Peregrine Financial Group, Inc., a Chicago futures merchant, and its owner Russell R. Wasendorf. The National Futures Association, the designated self-regulatory organization for monitoring and auditing the firm’s compliance, was conducting an audit this month, according to the CFTC’s complaint. Peregrine claimed during the audit to have over $220 million in customer funds. In fact the NFA was only able to find about $5.1 million.

Examination of the records disclosed that on February 28, 2010 firm records showed it had $207 million in the xxx1845 customer segregated account but the actual balance was less than $10 million. On March 30, 2011 the firm records listed a balance of $218 million in the same account while the actual balance was less than $10 million. On July 9, 2012 the firm records showed a balance of $225 million in the account while the actual balance was less than $5 million. Subsequently, the regulator learned that the chairman of the firm may have falsified bank records.

The CFTC’s complaint claims that from at least February 2010 the firm failed to maintain adequate customer funds in segregated accounts, as required by the Commodity Exchange Act and the applicable regulations. It also alleges that the firm and its chairman, both of whom are defendants in the action, made false statements about the segregated funds. Mr. Wasendorf is reported to have attempted suicide earlier this week.

The complaint seeks a freeze order, the appointment of a receiver and monetary relief including fines and restitution. The action is pending. CFTC v. Peregrine Financial Group, Inc., Case No. 12-cv-5383 (N.D. Ill. Filed July 10, 2012).

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