Medical Device Company Charged With Accounting Failures and FCPA Violations
Orthofix International admitted to improper revenue recognition and FCPA violations by falsely booking sales and bribing Brazilian government doctors, paying over $14 million in penalties and disgorgement, while four former executives paid combined fines of $125,000 and the CEO voluntarily reimbursed bonuses to avoid clawback.
Orthofix International agreed to pay more than $14 million to settle SEC charges, including an $8.25 million penalty for accounting fraud and over $6 million in disgorgement and penalties for FCPA violations. The company improperly recognized revenue by recording sales before payment conditions were met and extended payment terms, materially misstating financial statements from 2011 to Q1 2013, while its Brazilian subsidiary used fake invoices and third-party distributors to make illicit payments to government-employed doctors. Four former executives—Jeff Hammel ($20K penalty, two-year SEC suspension), Kenneth Mack ($40K), Bryan McMillan ($25K), and Brian McCollum ($35K penalty plus $40,885 reimbursement)—paid combined penalties totaling $125,885, and CEO Robert Vaters reimbursed $72,886 in bonuses, avoiding a Sarbanes-Oxley clawback.
Orthofix International admitted to widespread accounting fraud and Foreign Corrupt Practices Act (FCPA) violations, agreeing to pay over $14 million in penalties and disgorgement to settle SEC charges. The company improperly booked revenue by recording sales as soon as products were shipped—even when payment was contingent on future events—and granted customers significant payment extensions, leading to material misstatements in financial reports from 2011 through the first quarter of 2013. In Brazil, its subsidiary used fake invoices and third-party distributors to make improper payments to government-employed doctors to induce them to use Orthofix products, violating the FCPA due to inadequate internal controls. Four former executives were penalized: Jeff Hammel, the former accounting head, paid $20,000 and was suspended from practicing before the SEC for two years; Kenneth Mack and Bryan McMillan paid $40,000 and $25,000 respectively; and former CFO Brian McCollum paid a $35,000 penalty and reimbursed $40,885 in bonuses. CEO Robert Vaters, though not charged, voluntarily reimbursed $72,886 in cash bonuses and stock awards, eliminating the need for a Sarbanes-Oxley Section 304(a) clawback. Orthofix also agreed to retain an independent compliance consultant for one year to review its FCPA program, and the SEC credited the company’s cooperation and remedial actions. The investigations were conducted by multiple SEC teams with assistance from Brazil’s CVM.
Exhibits & Attached Documents (5)
Extracted insights
- $14.00M $14 million $10M–$100M
- $8.25M $8.25 million $1M–$10M
- $6.00M $6 million $1M–$10M
- $73K $72,886 $10K–$100K
- $41K $40,885 $10K–$100K
- $40K $40,000 $10K–$100K
- $35K $35,000 $10K–$100K
- $25K $25,000 $10K–$100K
- $20K $20,000 $10K–$100K
- agency appearing or practicing before sec as accountant
- person brian mccollum
- person bryan mcmillan
- person jeff hammel
- person kenneth mack
- person orthofix international
- person robert vaters
- agency Securities and Exchange Commission
- Orthofix International agreed to pay more than $14 million to settle charges
- Orthofix International improperly booked revenue in certain instances
- Orthofix International made improper payments to doctors at government-owned hospitals in Brazil
- Orthofix International violated Foreign Corrupt Practices Act (FCPA)
- Orthofix International agreed to pay $8.25 million penalty for accounting violations
- Orthofix International agreed to pay more than $6 million in disgorgement and penalties for FCPA charges
- Orthofix International materially misstated financial statements from 2011 to Q1 2013
- Jeff Hammel agreed to pay $20,000 penalty
- Jeff Hammel agreed to be suspended from appearing or practicing before SEC as accountant
- Kenneth Mack agreed to pay $40,000 penalty
- Bryan McMillan agreed to pay $25,000 penalty
- Brian McCollum agreed to pay $35,000 penalty
- Brian McCollum agreed to reimburse company $40,885 for bonuses
- Robert Vaters reimbursed company $72,886 for cash bonuses and stock awards
- Orthofix International subsidiary in Brazil schemed to use high discounts and improper payments to induce doctors
- SEC announced settlement with Orthofix International
The Securities and Exchange Commission today announced that Texas-based medical device company Orthofix International has agreed to admit wrongdoing and pay more than $14 million to settle charges that it improperly booked revenue in certain instances and made improper payments to doctors at government-owned hospitals in Brazil in order to increase sales. Four then-executives at Orthofix also agreed to pay penalties to settle cases related to the accounting failures, which according to the SEC’s order involved Orthofix improperly recording certain revenue as soon as a product was shipped despite contingencies requiring certain events to occur in order to receive payment in the transaction. In other instances, Orthofix immediately recorded revenue when it had provided customers with significant extensions of time to make payments. The accounting failures caused the company to materially misstate certain financial statements from at least 2011 to the first quarter of 2013. “Orthofix’s accounting failures were widespread and significant, causing Orthofix to make false statements to the public about its financial condition,” said Antonia Chion, Associate Director in the SEC’s Enforcement Division. A separate SEC order finds that Orthofix violated the Foreign Corrupt Practices Act (FCPA) when its subsidiary in Brazil schemed to use high discounts and make improper payments through third-party commercial representatives and distributors to induce doctors under government employment to use Orthofix’s products. Fake invoices were used for purported services. Kara N. Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit, added, “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.” Orthofix agreed to pay an $8.25 million penalty to resolve the accounting violations and more than $6 million in disgorgement and penalties to settle the FCPA charges. The company agreed to retain an independent compliance consultant for one year to review and test its FCPA compliance program. The SEC’s order noted Orthofix’s cooperation and remedial acts. Jeff Hammel, a former accounting executive in Orthofix’s largest business segment, agreed to pay a $20,000 penalty and former sales executives Kenneth Mack and Bryan McMillan agreed to pay penalties of $40,000 and $25,000 respectively. Hammel also agreed to be suspended from appearing or practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies. The SEC’s order permits Hammel to apply for reinstatement after two years. Orthofix’s former corporate CFO Brian McCollum agreed to pay a $35,000 penalty and reimburse the company $40,885 for bonuses he received during the period when the company committed accounting violations. The four consented to the SEC’s orders without admitting or denying the findings. Orthofix’s then-CEO Robert Vaters, who was not charged with wrongdoing, has reimbursed the company $72,886 for cash bonuses and certain stock awards he received during the period when the company committed accounting violations. Therefore, it wasn’t necessary for the SEC to pursue a Sarbanes-Oxley Section 304(a) clawback action against him. The SEC’s investigation into the accounting violations was conducted by Noel Gittens and Richard Haynes with assistance from Gregory Bockin. It was supervised by Ricky Sachar and Ms. Chion. The SEC’s investigation into the FCPA violations was conducted by Sana Muttalib and supervised by Ansu N. Banerjee and Ms. Brockmeyer. The SEC appreciates the assistance of the Comissao de Valores Mobiliarios in Brazil.
The Securities and Exchange Commission today announced that Texas-based medical device company Orthofix International has agreed to admit wrongdoing and pay more than $14 million to settle charges that it improperly booked revenue in certain instances and made improper payments to doctors at government-owned hospitals in Brazil in order to increase sales. Four then-executives at Orthofix also agreed to pay penalties to settle cases related to the accounting failures, which according to the SEC’s order involved Orthofix improperly recording certain revenue as soon as a product was shipped despite contingencies requiring certain events to occur in order to receive payment in the transaction. In other instances, Orthofix immediately recorded revenue when it had provided customers with significant extensions of time to make payments. The accounting failures caused the company to materially misstate certain financial statements from at least 2011 to the first quarter of 2013. “Orthofix’s accounting failures were widespread and significant, causing Orthofix to make false statements to the public about its financial condition,” said Antonia Chion, Associate Director in the SEC’s Enforcement Division. A separate SEC order finds that Orthofix violated the Foreign Corrupt Practices Act (FCPA) when its subsidiary in Brazil schemed to use high discounts and make improper payments through third-party commercial representatives and distributors to induce doctors under government employment to use Orthofix’s products. Fake invoices were used for purported services. Kara N. Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit, added, “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.” Orthofix agreed to pay an $8.25 million penalty to resolve the accounting violations and more than $6 million in disgorgement and penalties to settle the FCPA charges. The company agreed to retain an independent compliance consultant for one year to review and test its FCPA compliance program. The SEC’s order noted Orthofix’s cooperation and remedial acts. Jeff Hammel, a former accounting executive in Orthofix’s largest business segment, agreed to pay a $20,000 penalty and former sales executives Kenneth Mack and Bryan McMillan agreed to pay penalties of $40,000 and $25,000 respectively. Hammel also agreed to be suspended from appearing or practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies. The SEC’s order permits Hammel to apply for reinstatement after two years. Orthofix’s former corporate CFO Brian McCollum agreed to pay a $35,000 penalty and reimburse the company $40,885 for bonuses he received during the period when the company committed accounting violations. The four consented to the SEC’s orders without admitting or denying the findings. Orthofix’s then-CEO Robert Vaters, who was not charged with wrongdoing, has reimbursed the company $72,886 for cash bonuses and certain stock awards he received during the period when the company committed accounting violations. Therefore, it wasn’t necessary for the SEC to pursue a Sarbanes-Oxley Section 304(a) clawback action against him. The SEC’s investigation into the accounting violations was conducted by Noel Gittens and Richard Haynes with assistance from Gregory Bockin. It was supervised by Ricky Sachar and Ms. Chion. The SEC’s investigation into the FCPA violations was conducted by Sana Muttalib and supervised by Ansu N. Banerjee and Ms. Brockmeyer. The SEC appreciates the assistance of the Comissao de Valores Mobiliarios in Brazil.