DOJ closes FCPA probe into Misonix

Misonix said it received the declination letter from the Department of Justice on Aug. 13. The company previously disclosed that it had received a letter from the Securities and Exchange Commission’s Division of Enforcement on June 18, stating that the agency also had concluded its investigation of Misonix and that, based on the information it had as of the date of that letter, did not intend to recommend an enforcement action concerning the same matters.

The investigations began in August 2016, when then-chairman and CEO Michael McManus resigned, just prior to the company delaying its annual report due to “certain internal control deficiencies.” As previously disclosed, with the assistance of outside counsel, Misonix said it conducted a voluntary investigation into the business practices of the independent Chinese entity that previously distributed its products in China and Misonix’s knowledge of those business practices concerning potential FCPA violations, as well as potential internal controls issues identified during the investigation.

In September 2016, Misonix voluntarily contacted the SEC and the Justice Department to advise both agencies of these potential issues.

In February 2017, Misonix disclosed in a filing with the SEC that its board has been “informed by management of potential violations of company policies and procedures and possible violations of laws and regulations involving the director and officer who resigned in 2016 and other company personnel.” That securities filing further disclosed that an investigation by the audit committee found “material weaknesses in internal control over [the company’s] financial reporting” and that “disclosure controls and procedures were not effective and were not operating at a reasonable assurance level.”

These disclosures culminated in a pair of derivative complaints being filed on behalf of the company in June 2017. The complaints, which were later joined, claimed violation of the Securities Exchange Act of 1934; breach of fiduciary duty; gross mismanagement; unjust enrichment; and waste of corporate assets.

Compliance reforms

In April 2018, after five months of negotiations, Misonix agreed to an extensive set of corporate governance reforms relevant to the allegations in the action and further agreed to make enhancements to its anti-corruption compliance program. The company must maintain these changes for a minimum of six years.

Among those reforms:

• Creation of a new compliance officer position;
• Reconstitution of Misonix’s compliance committee to include the entire senior management team, appointing the compliance officer as chair and the sales and marketing officers as non-voting members;
• Development of a “distributor screening process/policy” regarding international distributors;
• Hiring of an internal auditor adviser to help Misonix update its policies and procedures;
• Retention of a third-party expert consulting firm to assist management with the review of the company’s quarterly and annual tax provisions and tax footnotes in financial reporting;
• Revision of Misonix’s Code of Business Conduct and Ethics;
• Increased communications and training for employees regarding the company’s ethical values; and
• Amendment of the charters for the audit committee, nominating and governance committee, and compensation committee.

The company also enacted certain additional anti-corruption compliance enhancements, including:

• Additional FCPA-related responsibilities for Misonix’s compliance officer;
• Posting FCPA-compliance policies on Misonix’s intranet and having employees periodically certify their understanding of their obligations and agreement to comply with Misonix’s Code of Conduct;
• Implementing an FCPA Testing Program to, among other things, monitor and evaluate a risk-based sample of interactions in high-risk environments;
• Using FCPA compliance as a consideration of the compensation committee in making decisions regarding performance-based or incentive compensation and the potential for modification of compensation to individuals who violate FCPA policies;
• Review by the audit committee, with management and the independent auditors, on the effectiveness and adequacy of the company’s internal reporting procedures and controls, including FCPA compliance;
• Mandatory training concerning compliance with the FCPA and related Misonix policies for all Misonix officers; and
• Requiring the board to meet at least four times a year.

Additionally, moving forward, Misonix will ensure newly acquired businesses’ anti-corruption policies and procedures are put into place quickly and that training of appropriate employees is conducted concerning anti-corruption laws and Misonix’s policies and procedures.