The U.S. Securities & Exchange Commission said today that Analogic (NSDQ:ALOG) agreed to pony up $15 million to settle civil and criminal charges brought over violations of the Foreign Corrupt Practices Act.
The SEC said Peabody, Mass.-based Analogic’s Danish subsidiary, BK Medical, ran hundreds of sham transactions with distributors to funnel some $20 million to 3rd parties, “including individuals in Russia and apparent shell companies in Belize, the British Virgin Islands, Cyprus, and Seychelles.”
Led by former BK Medical CFO Lars Frost, the Danish unit would issue fake, inflated invoices to the distributors and send the overages to 3rd parties tagged by the distributors.
“BK Medical did not have a relationship with the third parties and did not know if the payments had any business purpose,” according to the securities watchdog.
BK Medical’s Russian distributor accounted for at least 180 payments of more than $16 million, the SEC said, with its distributors in Ghana, Israel, Kazakhstan, Ukraine and Vietnam also participating but on a smaller scale – a total of 80 payments worth $3.8 million.
Frost, BK Medical’s CFO from 2008 to 2011, personally approved about 150 of the faked invoices and cooked the books he submitted to Analogic. He agreed to cough up a $20,000 penalty to the SEC but admitted no wrongdoing. For its part, Analogic – which discovered the violations and volunteered them to U.S.and Danish authorities – agreed to disgorge $7.7 million and pay another $3.8 million in pre-judgment interest. In a separate deal with the U.S. Justice Dept., BK Medical agreed to pay a $3.4 million fine, the SEC said.
“Analogic’s subsidiary, BK Medical, allowed itself to be used as a slush fund for its distributors, funneling millions of dollars around the world at its distributors’ direction without knowing the purpose of the payments or anything about the recipients,” SEC enforcement chief Kara Brockmeyer said in prepared remarks. “Issuers and their subsidiaries cannot turn a blind eye to suspicious payments, even if they believe they are simply ‘helping out’ a business partner.”
The settlement is not a surprise, as Analogic said last December that it might be on the hook for the $15 million deal after the SEC rejected its initial settlement offer of $1.6 million.
“We are pleased to have resolved the matter. The resolution emphasizes the importance of legal and ethical business conduct in all aspects of our business,” president & CEO Jim Green said in prepared remarks.
Analogic spokesman Mark Namaroff said the company is glad to settle, has improved its internal controls, and set aside money to cover the accords.
That figure doesn’t take into account any sanctions or penalties that could be imposed by the Danish government, although under Danish law, any penalties imposed would take into account the amount the company paid to the DOJ and SEC, Analogic has said.
ALOG shares ticked up .02% to $82.97 apiece today in late-afternoon trading.
Material from Reuters was used in this report.