Johnson & Johnson (NYSE:JNJ) shareholders filed a derivatives lawsuit over $78 million in settlements the company paid to put over Foreign Corrupt Practices Act violation and kickback charges to rest.
Last month the New Brunswick, N.J.-based health care conglomerate agreed to the payments, without admitting or denying responsibility, to settle charges in the U.S. and the U.K. that its DePuy Inc. unit earned more than $24 million in profits over eight years by bribing Greek orthopedic surgeons to buy its implants. The U.S. settlement also covers bribery charges over its pharmaceutical products and an alleged kickbacks scheme to win contracts under the United Nations Oil-for-Food program in Iraq.
The lawsuit, filed in the U.S. District Court for New Jersey, accuses J&J’s board of failing to create internal controls to detect FCPA violations and of breaching its duty to shareholders by concealing the nature of the offenses.
"J&J never disclosed to J&J shareholders the details regarding the comapny’s widespread bribery of doctors in Europe and kickbacks in Iraq," according to court documents. "Instead, in J&J’s shareholders report issued between mid-2007 and March 2011, defendants merely acknowledged the existence of the ongoing FCPA investigations and described some of the remedies available to the [federal Securities & Exchange Commission] and [U.S. Justice Dept.] for violatiuons of the FCPA."
The alleged infractions took place between 1998 and 2006 when the Warsaw, Ind.-based company, through its DePuy International Ltd. unit, began funneling funds to a Greek distributor which would in turn pay doctors working in the Greek public health system to purchase orthopedic implants made by DePuy.
While the scheme originated prior to JNJ’s 1998 buyout of DePuy, investigators say that J&J officials knew of the arrangement and allowed it to continue, even allowing DePuy to purchase the Greek distributor in 2001 and renaming it Depuy Helles despite several red flags being raised internally.
"In total, J&J earned over $24 million in profits by bribing Greek doctors to buy surgical implants. The company earned $4.3 million in Poland as a result of bribes, and another $3.5 million through illegal rewards in Romania," according to the shareholders’ lawsuit. "J&J also made $6.1 million in profits by paying kickbacks to Iraq to win business there."
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