Orthofix International, a maker of orthopedic products, announced in a recent Form 10-Q with the Securities and Exchange Commission that it has recorded a charge of $4.6 million in the second quarter of 2016 to resolve potential FCPA charges with respect to its subsidiary in Brazil.
In 2012, Orthofix entered into definitive agreements with the Department of Justice and the SEC agreeing to settle a self-initiated and self-reported internal investigation of its Mexican subsidiary, Promeca, regarding non-compliance by Promeca with the FCPA. As part of the settlement, Orthofix entered into a three-year deferred prosecution agreement with the Department of Justice and a consent to final judgment with the SEC. Under the DPA, the Department of Justice agreed not to pursue any criminal charges against us in connection with the Promeca matter if Orthofix complied with the terms of the DPA.
In August 2013, during the terms of the DPA and consent, the company’s internal legal department was notified of certain allegations involving potential improper payments with respect to its Brazilian subsidiary, Orthofix do Brasil Ltda. The company engaged outside counsel to assist in the review of these allegations, focusing on compliance with applicable anti-bribery laws, including the FCPA. Consistent with the provisions of these agreements, the company contacted both the Department of Justice and the SEC in August 2013 to voluntarily self-report the Brazil-related allegations.
In June 2015, the company and the Department of Justice agreed to extend the term of the DPA for two months (through Sept. 17, 2015) to permit the Department of Justice additional time to evaluate the Orthofix’s compliance with the internal controls and compliance undertakings in the DPA and to further investigate the Brazil-related allegations. Then on Sept. 17, 2015, the Department of Justice extended the term of the DPA for an additional ten months (through July 17, 2016), stating that the company’s efforts to comply with the internal controls and compliance requirements of the DPA during the first eighteen months of the DPA were insufficient.
On July 17, 2016, the DPA expired. The terms of the DPA require that Department of Justice notify the court and file a dismissal of the underlying Promeca-related case within 30 days of such expiration. This dismissal was filed on July 28, 2016. “Since the self-report regarding allegations in Brazil, the company has cooperated fully with the DOJ’s investigation of those allegations,” the company’s Form 10-Q stated.
The company said it also has fully cooperated with the SEC’s investigations of the allegations in Brazil. “We are currently engaged in discussions with the SEC Enforcement Staff regarding a resolution of the Brazil-related allegations as they relate to the SEC’s jurisdiction,” Orthofix stated in the Form 10-Q.
The company has recorded a charge of $4.6 million in the second quarter of 2016 to establish an accrual, “which the company believes represents the minimum range of loss, in connection with a potential negotiated resolution to this matter,” the Form 10-Q stated. “Based on information available at this time, the company estimates that the final resolution to the matter could result in an additional loss of up to $1.5 million in excess of the loss accrued. The company will continue to evaluate the accrual pending final resolution of the matter and the related settlement discussions with the government.”
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