The SEC said today that Orthofix (NSDQ:OFIX) has agreed to cough up more than $14 million to settle federal charges that it improperly booked revenue and made improper payments to doctors at government-owned hospitals in Brazil to increase sales.
According to the SEC, the Texas-based medical device company improperly recorded some revenue as soon as a product was shipped, even if certain events had to occur first in order to receive payment. The company also immediately recorded revenue when it had provided its customers with significant time extensions to make payments. From 2011 to the 1st quarter of 2013, the company misstated certain financial statements because of these accounting failures, the SEC wrote.
“Orthofix’s accounting failures were widespread and significant, causing Orthofix to make false statements to the public about its financial condition,” the SEC’s enforcement division’s associate director Antonia Chion said in prepared remarks.
The SEC also found that Orthofix’s Brazilian subsidiary violated the Foreign Corrupt Practices Act by using high discounts and making improper payments through 3rd-party commercial reps and distributors to encourage doctors in government-funded hospitals to use the company’s products.
“Orthofix did not have adequate internal controls across all its subsidiaries and failed to detect and prevent the improper payments in Brazil that were intended to boost sales,” the chief of the SEC enforcement division’s FCPA unit, Kara Brockmeyer, added.
Besides agreeing to pay more than $14 million in fines, the company will bring on an independent compliance consultant for 1 year to review its FCPA compliance program.
A former accounting executive, Jeff Hammel, has agreed to pay $20,000 and will be suspended from appearing or practicing before the SEC as an accountant. Hammel can apply for reinstatement after 2 years.
Kenneth Mack and Bryan McMillan, former sales executives, will pay $40,000 and $25,000 respectively.
The company’s former corporate CFO Brian McCollum has agreed to pay a $35,000 fine, as well as reimburse the company $40,885 for bonuses he received during the time that the company was committing accounting violations.
Orthofix’s former CEO, Robert Vaters, has reimbursed the company $72,886 for cash bonuses and stock awards he received.
“We are very pleased to bring closure to these collective matters, which relate to activities that occurred largely between 2011 and 2013,” president & CEO Brad Mason said in prepared remarks. “We have instituted broad remedial measures designed to detect and prevent the issues that led to the matters being resolved, and these resolutions allow us to continue moving forward with the company’s critical mission of serving patients, our physician customers, and shareholders.”