In re BRIAN MCCOLLUM

 
 
UNITED STATES OF AMERICA 
Before the 
SECURITIES AND EXCHANGE COMMISSION 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 79819 / January 18, 2017  
ACCOUNTING AND AUDITING ENFORCEMENT 
Release No. 3847 / January 18, 2017   
ADMINISTRATIVE PROCEEDING 
File No. 3-17793 
 
In the Matter of 
BRIAN MCCOLLUM 
Respondent. 
 
ORDER INSTITUTING CEASE-AND-
DESIST PROCEEDINGS PURSUANT TO 
SECTION 21C OF THE SECURITIES 
EXCHANGE ACT OF 1934, MAKING 
FINDINGS, AND IMPOSING CEASE-AND-
DESIST ORDERS AND REMEDIES 
 
I. 
 The Securities and Exchange Commission (“Commission”) deems it appropriate that 
cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the 
Securities Exchange Act of 1934 (“Exchange Act”), against Brian McCollum (“McCollum” or 
“Respondent”). 
II. 
 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (“Offer”), which the Commission has determined to accept.  Solely for the purpose 
of these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
which the Commission is a party, and without admitting or denying the findings herein, except as 
to the Commission’s jurisdiction over him and the subject matter of these proceedings, which are 
admitted, and except as provided in Section IV.F herein, Respondent consents to the entry of this 
Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities 
Exchange Act of 1934, Making Findings, and Imposing Cease-and-Desist Orders and Remedies 
(“Order”), as set forth below. 
 
 
 
III. 

2 
 
 
 
On the basis of this Order and Respondent’s Offer, the Commission finds
 
that: 
SUMMARY 
 This matter concerns the role of Brian McCollum (“McCollum”) in a financial 
restatement that occurred at Orthofix International, N.V. (“Orthofix”) as a result of misconduct 
from at least 2011 through mid-2013 (“the relevant period”).  From March 2011 to November 
2012, McCollum served as the company’s Chief Financial Officer (“CFO”) and, beginning in 
November 2012, left the CFO role to become the President of Orthofix’s Spine Segment. 
The majority of this misconduct that caused the restatement occurred at Orthofix’s then-
largest segment, its Spine segment (“Spine”).  In particular, Orthofix improperly recognized 
revenue associated with several transactions with Spine’s distributors, including its largest 
international distributor during the relevant period.  As a result of its misconduct, Orthofix 
restated its financial results for the first quarter of fiscal year 2013, all reporting periods in fiscal 
years 2012 and 2011, and its annual reporting period in fiscal year 2010. 
 During the relevant period, McCollum received notice indicating that Orthofix had 
improperly recognized revenue on a significant transaction with its largest international 
distributor and certain internal controls issues at the company.  In response, however, McCollum 
failed to investigate the improperly recognized revenue and made an improper Sarbanes-Oxley 
Section 302 certification.    Moreover, McCollum received bonuses during the 12-month periods 
following the filings containing financial results that Orthofix has restated as a result of 
misconduct and has not reimbursed Orthofix for those bonuses. 
RESPONDENT 
Brian McCollum, 40, served as Orthofix’s Chief Financial Officer from March 2011 
through November 2012 and then served as the President of Orthofix’s Spine Segment from 
November 2012 until July 2013.  McCollum is no longer employed at Orthofix. 
FACTS 
A. Orthofix’s Business and McCollum’s Responsibilities 
 
1. Orthofix’s business was primarily divided into two Global Business Segments during the 
relevant period – Spine and Orthopedics.  Spine was Orthofix’s largest segment and 
contributed two-thirds of the company’s overall revenues. 
2. Spine had several operating divisions during the relevant period including Orthofix 
Spinal Implants (“OSI”), which was responsible for international sales of spinal implants 
and related instruments. 
3. During his tenure as Orthofix’s CFO, McCollum was responsible for the preparation of 
Orthofix’s public filings, including its consolidated financial results.   

3 
 
 
 
4. During his tenure as the Spine Segment President, McCollum was in charge of Spine’s 
sales and overall management.  In his role as Spine Segment President, several persons 
reported to him including the Chief Financial Officer of the Spine Segment (“Spine 
CFO”).   
5. Spine sold various products including spinal and cervical implants and related 
instruments.  The instruments and implants were interconnected as implants could not be 
used in patients without functioning instrument sets.  
6. Spine sold the above products through two primary methods:  (i) sales of its products to 
U.S. and international distributors who then sold the products to hospitals and physicians 
and (ii) sales of its products directly to hospitals and physicians in the U.S. 
B. Revenue Recognition Practices 
7. With limited exceptions, Orthofix recognized revenue during the relevant period based on 
the “sell-in” method, which provides for revenue recognition upon shipment of products 
to the distributor. 
8. ASC 605-10-25-1 provides that revenue may be recognized only when it is both realized 
or realizable and earned.  Consistent with the authoritative literature, Orthofix’s financial 
statements disclosed four criteria as its revenue recognition policy. 
9. The four criteria are: (i) persuasive evidence of an arrangement exists; (ii) delivery has 
occurred or services have been rendered; (iii) the seller’s price to the buyer is fixed and 
determinable; and (iv) collectability is reasonably assured. 
C. Orthofix Improperly Records Revenue by Selling Implants without Instrument Sets 
10. OSI had several international distributors during the relevant period, but its largest 
distributor of product was located in Brazil (hereinafter “the Brazilian Distributor”).  In 
fact, for eight of the nine quarters from Q1 2011 to Q1 2013, the Brazilian Distributor 
was the company’s second largest customer on a revenue per quarter basis. 
11. Entering 2011, Orthofix had a receivable of approximately $5 million from the Brazilian 
Distributor from prior sales.  The Brazilian Distributor forecasted that it would purchase 
approximately $8.5 million of Orthofix implants and instruments in FY 2011. 
12. Prior to this time, Orthofix had sold implants along with used instrument sets rather than 
new ones to the Brazilian Distributor.  As discussed above, implants and instruments 
were interconnected because the implants could not be used in patients without related 
instrument sets. 
13. At this time, however, the Brazilian Distributor could no longer purchase previously used 
instrument sets because ANVISA (the Brazilian equivalent of the U.S. Food and Drug 

4 
 
 
 
Administration) imposed new regulations prohibiting the importation of used instrument 
sets. 
14. Orthofix did not have the new instrument sets (105 in total) available to be shipped along 
with the implants it shipped to the Brazilian Distributor.  Rather than waiting until the 
new instrument sets were available, Orthofix – in FY 2011 – shipped approximately $5 
million in implants to the Brazilian Distributor despite the fact that these implants could 
not be used in patients without the new instrument sets. 
15. Orthofix recognized the approximately $5 million revenue upon shipment of the above 
implants.  Orthofix’s recognition of revenue in this regard was improper as delivery of 
the interconnected product – the instruments – had not yet occurred.  Orthofix knew that 
the implants could not be used in patients without the instruments.  As such, payment 
timing and terms were contingent upon the instrument sets being made available and 
therefore, revenue recognition was inconsistent with Orthofix’s accounting policy 
because it did not meet the fixed or determinable criteria or the collectability criteria. 
16. This improper recognition of revenue caused Orthofix’s financial statements to be 
materially misstated in its Forms 10-Q for the second and third quarters of FY 2011 and 
its year-end Form 10-K for FY 2011 and corresponding earnings releases. 
D. McCollum is Put on Notice of Issues with Implant Without Instruments Transactions 
 
17. McCollum – soon after becoming Orthofix’s CFO in early 2011 – implemented a general 
unwritten bad debt policy applicable to both Spine and Orthopedics.  The policy required 
that any accounts receivable that had been outstanding at least 360 days from the invoice 
date of a shipment had to be fully reserved as bad debt.  McCollum, along with the 
Corporate Controller and Segment CFOs, were responsible for the calculation of the bad 
debt reserve. 
18. On August 1, 2012 – two days after Orthofix had filed its Form 10-Q for the second 
quarter of FY 2012 and as part of the process for handling Orthofix’s bad debt calculation 
– the Corporate Controller emailed the Spine CFO an aging schedule identifying that as 
of June 30, 2012 approximately $4 million of amounts owed to OSI was over one year 
old.   
19. The aging schedule contained in this email, however, demonstrated that the allowance for 
doubtful accounts as of the second quarter of FY 2012 was only $1.6 million (or 40% of 
accounts receivable over 360 days old).  The Corporate Controller then wrote “what 
doesn’t make sense is that our policy is to reserve all amounts in the [over one year old 
bucket].” 
20. The Corporate Controller then forwarded the email to McCollum and wrote the 
following: 

5 
 
 
 
I spoke with [the Spine CFO] on this.  The rationale for not reserving all of the 
360+ bucket for [Spine] is that technically the receivable balance from [the 
Brazilian Distributor] is not >360 days old since they have extended terms in their 
contract.  The aging schedule is based on days past the invoice date for all 
[accounts receivable].  To further exacerbate the situation, [the Brazilian 
Distributor] could not sell the Implants inventory that we sold to them in 2011 
since we were delayed in sending them the instrument sets (that they needed to 
sell the Implants).  This one-year delay was caused by [ANVISA] who required 
us to send new instruments (as opposed to our original plan to move used 
instruments). 
21. The Corporate Controller further noted in the email that – based on discussions he had 
with the Spine CFO – the Brazilian Distributor planned to make a $4 million payment in 
December 2012 that would significantly reduce the 360+ day bucket in the year-end 
aging presentation.  
22. Through this email, McCollum was on notice that Orthofix had a significant outstanding 
receivable associated with implants for which there had been an at least one year delay in 
sending the corresponding instrument sets.   
23. McCollum, however, did not take steps to investigate the circumstances of the original 
transaction and to determine whether the revenue associated with the original transaction 
had been properly recognized.  As noted earlier, Orthofix improperly recognized $5 
million of revenue because the implants could not be used in patients without the 
instruments.  As such, payment timing and terms were contingent upon the instrument 
sets being made available and, therefore, revenue recognition was inconsistent with 
Orthofix’s accounting policy because it did not meet the fixed or determinable criteria or 
the collectability criteria. 
24. Moreover, McCollum subsequently made an improper Sarbanes-Oxley Section 302 
certification in Orthofix’s Form 10-Q for the third quarter of 2012.   
E. McCollum is Put on Notice of Issues Concerning Brazilian Distributor  
25. In December 2012, the Spine CFO learned that the Brazilian Distributor’s President had – 
in June 2012 – informed the then Spine President and Vice President of Global Sales and 
Development for the international portion of the Spine Segment (“Spine Sales VP”) that 
it would not pay $4 million of its amounts payable by the end of December 2012.  Rather, 
the Brazilian Distributor’s President informed the then Spine President and Spine Sales 
VP that it would only pay $1.6 million of its amounts payable by December 2012 and the 
remainder by February 2013. 
26. At this time, McCollum was no longer Orthofix’s CFO and now served as the President 
of Orthofix’s Spine Segment. 

6 
 
 
 
27. On December 1, 2012, the Spine CFO informed McCollum of the above information he 
learned, writing: 
[The Brazilian Distributor’s President] says below they made a payment agreement 
with [the then Spine President] . . . I have no idea what may have been promised.  I 
do know that I fought pricing and terms concessions, but those were ultimately given 
at some point despite my denials.  This was commonplace.  I was told that I was the 
decision maker on pricing and terms and then secretly overridden.  [The Spine Sales 
VP] did it all of the time – don’t know how much [the Spine Sales President] was 
involved. 
28. On December 7, 2012, the Brazilian Distributor’s President travelled to the U.S. to meet 
with the Spine CFO and Spine Sales VP.  At that meeting, the Brazilian Distributor’s 
President provided a Power Point presentation to the Spine CFO and Spine Sales VP with 
a detailed chronology of events on several transactions involving the Brazilian 
Distributor, including the implants-without-instruments transactions.   
29. The Spine CFO subsequently forwarded the Power Point presentation to McCollum.  
McCollum, however, failed to confirm that this Power Point presentation had been 
brought to the attention of the then Orthofix CFO nor did he separately confirm that the 
transactions outlined in the Power Point presentation had been discussed with the then 
Orthofix CFO. 
30. Moreover, McCollum failed to evaluate the impact that the information contained in the 
Power Point had on the revenue that the company had previously recognized and 
disclosed in its financial statements when he served as Orthofix’s CFO. 
31. Ultimately, Orthofix filed its FY 2012 Form 10-K in March 2013 and took no steps to 
correct the revenue that it had previously improperly recognized on the implants-without 
instruments and other transactions with the Brazilian Distributor. 
F. Orthofix’s Restatement 
32. Orthofix materially misstated several of its annual and quarterly filings and 
corresponding earnings releases, failed to make and keep books and records which, in 
reasonable detail, accurately and fairly reflected the transactions and dispositions of the 
assets of the issuer, and failed to devise and maintain a system of internal accounting 
controls sufficient to provide reasonable assurance that transactions are recorded as 
necessary to permit the preparation of financial statements in conformity with generally 
accepted accounting principles.   
33. Accordingly – in late March 2014 – Orthofix restated its financial statements for the first 
quarter of fiscal year 2013, all quarterly and annual periods in fiscal years 2012 and 2011, 
and the annual period for fiscal year 2010 as a result of misconduct.  Orthofix also 
acknowledged certain material weaknesses in its internal control over financial reporting. 

7 
 
 
 
G. McCollum’s Compensation 
34. During the 12-month periods that followed the filing of the periodic reports requiring 
restatement, McCollum received bonuses and has not reimbursed those amounts to 
Orthofix. 
VIOLATIONS 
35. Exchange Act Section 13(a) and Rules 13a-1, 13a-11, and 13a-13 thereunder require 
issuers to file such periodic and other reports as the Commission may prescribe and in 
conformity with such rules as the Commission may promulgate.  Exchange Act Rules 
13a-1, 13a-11, and 13a-13 require the filing of annual, current, and quarterly reports, 
respectively.  Rule 12b-20 of the Exchange Act requires issuers to add such further 
material information, if any, as may be necessary to make the required statements, in the 
light of the circumstances under which they are made not misleading. 
36. Exchange Act Section 13(b)(2)(A) requires issuers to “make and keep books, records, 
and accounts, which, in reasonable detail, accurately and fairly reflect the transactions 
and dispositions of the assets of the issuer.”  Exchange Act Section 13(b)(2)(B) requires 
issuers to devise and maintain a system of internal accounting controls sufficient to 
provide reasonable assurances that transactions are recorded as necessary to permit the 
preparation of financial statements in conformity with generally accepted accounting 
principles. 
37. Exchange Act Rule 13b2-1 prohibits any person from, directly or indirectly, falsifying or 
causing to be falsified, any book, record, or account subject to Exchange Act Section 
13(b)(2)(A). 
38. Exchange Act Rule 13a-14, among other things, requires each principal executive, and 
principal financial officer to certify in each quarterly and annual report filed under 
Section 13(a) of the Exchange Act that such officer and the issuer’s other certifying 
officer have designed internal control over financial reporting, or caused such internal 
controls over financial reporting to be designed under their supervision, to provide 
reasonable assurance regarding the reliability of financial reporting and the preparation of 
financial statements for external purposes in accordance with GAAP. 
39. Section 304 of the Sarbanes-Oxley Act of 2002 requires the chief executive officer or chief 
financial officer of any issuer required to prepare an accounting restatement due to material 
noncompliance with the securities laws as a result of misconduct to reimburse the issuer 
for:  (i) any bonus or incentive-based or equity-based compensation received by that person 
from the issuer during the 12-month periods following the false filings; and (ii) any profits 
realized from the sale of securities of the issuer during that 12-month periods.  Section 304 
does not require that a chief executive officer or chief financial officer engage in 
misconduct to trigger the reimbursement requirement. 

8 
 
 
 
40. As a result of the conduct described above, McCollum violated Exchange Act Rules 13a-
14 and 13b2-1, Sarbanes-Oxley Act Section 304(a) and was a cause of Orthofix’s 
violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 12b-
20, 13a-1, 13a-11, and 13a-13 thereunder. 
IV. 
In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
agreed to in Respondent’s Offer. 
Accordingly, pursuant to Section 21C of the Exchange Act, it is hereby ORDERED 
effective immediately that McCollum cease and desist from committing or causing any 
violations and any future violations of Exchange Act Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), 
and Rules 12b-20, 13a-1, 13a-11, 13a-13, 13a-14, and 13b2-1 thereunder and Section 304(a) of 
the Sarbanes-Oxley Act. 
A. Within 30 days of the entry of this order, McCollum shall pay a civil money 
penalty of $35,000. 
B. Moreover, McCollum shall, within 30 days of the entry of this order, reimburse 
Orthofix for a total of $40,885 in Orthofix bonuses, other incentive-based or equity-based 
Orthofix compensation pursuant to Section 304(a) of Sarbanes-Oxley Act. 
C. If timely payment is not made, additional interest shall accrue pursuant to 31 
U.S.C. § 3717. 
D. Payment must be made in one of the following three ways: 
(1) Respondent may transmit payment electronically to the Commission, which 
will provide detailed ACH transfer/Fedwire instructions upon request; 
(2) Respondent may make direct payment from a bank account via Pay.gov 
through the SEC website at http://www.sec.gov/about/offices/ofin.htm; or 
(3) Respondent may pay by certified check, bank cashier’s check, or United 
States postal money order, made payable to the Securities and Exchange 
Commission and hand-delivered or mailed to: 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 
Payments by check or money order must be accompanied by a cover letter identifying the 
Respondent in these proceedings, and the file number of these proceedings; a copy of the cover 

9 
 
 
 
letter and check or money order must be sent to Antonia Chion, Division of Enforcement, 
Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-5720. 
E. Pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended, a Fair 
Fund is created for the penalties referenced in paragraph IV.A above.  This Fair Fund may be added 
to or combined with the fair fund established in In the Matter of Orthofix International, N.V., (AP 
File No. 3-17791; Release No. 10281, January 18, 2017) and/or may be added to or combined with 
fair funds established for the civil penalties paid by other Respondents for conduct arising in relation 
to the violative conduct at issue in this proceeding or the Orthofix proceeding, in order for the 
combined fair funds to be distributed to harmed investors affected by the same violative conduct.  
Regardless of whether any such Fair Fund distribution is made, amounts ordered to be paid as civil 
money penalties pursuant to this Order shall be treated as penalties paid to the government for all 
purposes, including all tax purposes.  To preserve the deterrent effect of the civil penalty, 
Respondent agrees that in any Related Investor Action, it shall not argue that it is entitled to, nor 
shall it benefit by, offset or reduction of any award of compensatory damages by the amount of 
any part of Respondent’s payment of a civil penalty in this action (“Penalty Offset”).  If the court 
in any Related Investor Action grants such a Penalty Offset, Respondent agrees that it shall, 
within 30 days after entry of a final order granting the Penalty Offset, notify the Commission's 
counsel in this action and pay the amount of the Penalty Offset to the Securities and Exchange 
Commission.  Such a payment shall not be deemed an additional civil penalty and shall not be 
deemed to change the amount of the civil penalty imposed in this proceeding.  For purposes of 
this paragraph, a “Related Investor Action” means a private damages action brought against 
Respondent by or on behalf of one or more investors based on substantially the same facts as 
alleged in the Order instituted by the Commission in this proceeding.  
F. It is further ordered that, solely for purposes of exceptions to discharge set forth in 
Section 523 of the Bankruptcy Code, 11 U.S.C. § 523, the findings in this Order are true and 
admitted by Respondent, and further, any debt for disgorgement, prejudgment interest, civil 
penalty or other amounts due by Respondent under this Order or any other judgment, order, 
consent order, decree or settlement agreement entered in connection with this proceeding, is a 
debt for the violation by Respondent of the federal securities laws or any regulation or order 
issued under such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. § 
523(a)(19).  
By the Commission. 
   
  Brent J. Fields 
Secretary 
 

UNITED STATES OF AMERICA 

Before the 

SECURITIES AND EXCHANGE COMMISSION 

SECURITIES EXCHANGE ACT OF 1934 
Release No. 79819 / January 18, 2017  

ACCOUNTING AND AUDITING ENFORCEMENT 
Release No. 3847 / January 18, 2017   

ADMINISTRATIVE PROCEEDING 
File No. 3-17793 

 

In the Matter of 

BRIAN MCCOLLUM 

Respondent. 

 ORDER INSTITUTING CEASE-AND-

DESIST PROCEEDINGS PURSUANT TO 

SECTION 21C OF THE SECURITIES 

EXCHANGE ACT OF 1934, MAKING 

FINDINGS, AND IMPOSING CEASE-AND-

DESIST ORDERS AND REMEDIES 

 

I. 

 The Securities and Exchange Commission (“Commission”) deems it appropriate that 

cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the 

Securities Exchange Act of 1934 (“Exchange Act”), against Brian McCollum (“McCollum” or 

“Respondent”). 

II. 

 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 

of Settlement (“Offer”), which the Commission has determined to accept.  Solely for the purpose 

of these proceedings and any other proceedings brought by or on behalf of the Commission, or to 

which the Commission is a party, and without admitting or denying the findings herein, except as 

to the Commission’s jurisdiction over him and the subject matter of these proceedings, which are 

admitted, and except as provided in Section IV.F herein, Respondent consents to the entry of this 

Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities 

Exchange Act of 1934, Making Findings, and Imposing Cease-and-Desist Orders and Remedies 

(“Order”), as set forth below. 

 

 

 

III. 



2 
 

 

 

On the basis of this Order and Respondent’s Offer, the Commission finds
 
that: 

SUMMARY 

 This matter concerns the role of Brian McCollum (“McCollum”) in a financial 

restatement that occurred at Orthofix International, N.V. (“Orthofix”) as a result of misconduct 

from at least 2011 through mid-2013 (“the relevant period”).  From March 2011 to November 

2012, McCollum served as the company’s Chief Financial Officer (“CFO”) and, beginning in 

November 2012, left the CFO role to become the President of Orthofix’s Spine Segment. 

The majority of this misconduct that caused the restatement occurred at Orthofix’s then-

largest segment, its Spine segment (“Spine”).  In particular, Orthofix improperly recognized 

revenue associated with several transactions with Spine’s distributors, including its largest 

international distributor during the relevant period.  As a result of its misconduct, Orthofix 

restated its financial results for the first quarter of fiscal year 2013, all reporting periods in fiscal 

years 2012 and 2011, and its annual reporting period in fiscal year 2010. 

 During the relevant period, McCollum received notice indicating that Orthofix had 

improperly recognized revenue on a significant transaction with its largest international 

distributor and certain internal controls issues at the company.  In response, however, McCollum 

failed to investigate the improperly recognized revenue and made an improper Sarbanes-Oxley 

Section 302 certification.    Moreover, McCollum received bonuses during the 12-month periods 

following the filings containing financial results that Orthofix has restated as a result of 

misconduct and has not reimbursed Orthofix for those bonuses. 

RESPONDENT 

Brian McCollum, 40, served as Orthofix’s Chief Financial Officer from March 2011 

through November 2012 and then served as the President of Orthofix’s Spine Segment from 

November 2012 until July 2013.  McCollum is no longer employed at Orthofix. 

FACTS 

A. Orthofix’s Business and McCollum’s Responsibilities 

 

1. Orthofix’s business was primarily divided into two Global Business Segments during the 

relevant period – Spine and Orthopedics.  Spine was Orthofix’s largest segment and 

contributed two-thirds of the company’s overall revenues. 

2. Spine had several operating divisions during the relevant period including Orthofix 

Spinal Implants (“OSI”), which was responsible for international sales of spinal implants 

and related instruments. 

3. During his tenure as Orthofix’s CFO, McCollum was responsible for the preparation of 

Orthofix’s public filings, including its consolidated financial results.   



3 
 

 

 

4. During his tenure as the Spine Segment President, McCollum was in charge of Spine’s 

sales and overall management.  In his role as Spine Segment President, several persons 

reported to him including the Chief Financial Officer of the Spine Segment (“Spine 

CFO”).   

5. Spine sold various products including spinal and cervical implants and related 

instruments.  The instruments and implants were interconnected as implants could not be 

used in patients without functioning instrument sets.  

6. Spine sold the above products through two primary methods:  (i) sales of its products to 

U.S. and international distributors who then sold the products to hospitals and physicians 

and (ii) sales of its products directly to hospitals and physicians in the U.S. 

B. Revenue Recognition Practices 

7. With limited exceptions, Orthofix recognized revenue during the relevant period based on 

the “sell-in” method, which provides for revenue recognition upon shipment of products 

to the distributor. 

8. ASC 605-10-25-1 provides that revenue may be recognized only when it is both realized 

or realizable and earned.  Consistent with the authoritative literature, Orthofix’s financial 

statements disclosed four criteria as its revenue recognition policy. 

9. The four criteria are: (i) persuasive evidence of an arrangement exists; (ii) delivery has 

occurred or services have been rendered; (iii) the seller’s price to the buyer is fixed and 

determinable; and (iv) collectability is reasonably assured. 

C. Orthofix Improperly Records Revenue by Selling Implants without Instrument Sets 

10. OSI had several international distributors during the relevant period, but its largest 

distributor of product was located in Brazil (hereinafter “the Brazilian Distributor”).  In 

fact, for eight of the nine quarters from Q1 2011 to Q1 2013, the Brazilian Distributor 

was the company’s second largest customer on a revenue per quarter basis. 

11. Entering 2011, Orthofix had a receivable of approximately $5 million from the Brazilian 

Distributor from prior sales.  The Brazilian Distributor forecasted that it would purchase 

approximately $8.5 million of Orthofix implants and instruments in FY 2011. 

12. Prior to this time, Orthofix had sold implants along with used instrument sets rather than 

new ones to the Brazilian Distributor.  As discussed above, implants and instruments 

were interconnected because the implants could not be used in patients without related 

instrument sets. 

13. At this time, however, the Brazilian Distributor could no longer purchase previously used 

instrument sets because ANVISA (the Brazilian equivalent of the U.S. Food and Drug 



4 
 

 

 

Administration) imposed new regulations prohibiting the importation of used instrument 

sets. 

14. Orthofix did not have the new instrument sets (105 in total) available to be shipped along 

with the implants it shipped to the Brazilian Distributor.  Rather than waiting until the 

new instrument sets were available, Orthofix – in FY 2011 – shipped approximately $5 

million in implants to the Brazilian Distributor despite the fact that these implants could 

not be used in patients without the new instrument sets. 

15. Orthofix recognized the approximately $5 million revenue upon shipment of the above 

implants.  Orthofix’s recognition of revenue in this regard was improper as delivery of 

the interconnected product – the instruments – had not yet occurred.  Orthofix knew that 

the implants could not be used in patients without the instruments.  As such, payment 

timing and terms were contingent upon the instrument sets being made available and 

therefore, revenue recognition was inconsistent with Orthofix’s accounting policy 

because it did not meet the fixed or determinable criteria or the collectability criteria. 

16. This improper recognition of revenue caused Orthofix’s financial statements to be 

materially misstated in its Forms 10-Q for the second and third quarters of FY 2011 and 

its year-end Form 10-K for FY 2011 and corresponding earnings releases. 

D. McCollum is Put on Notice of Issues with Implant Without Instruments Transactions 

 

17. McCollum – soon after becoming Orthofix’s CFO in early 2011 – implemented a general 

unwritten bad debt policy applicable to both Spine and Orthopedics.  The policy required 

that any accounts receivable that had been outstanding at least 360 days from the invoice 

date of a shipment had to be fully reserved as bad debt.  McCollum, along with the 

Corporate Controller and Segment CFOs, were responsible for the calculation of the bad 

debt reserve. 

18. On August 1, 2012 – two days after Orthofix had filed its Form 10-Q for the second 

quarter of FY 2012 and as part of the process for handling Orthofix’s bad debt calculation 

– the Corporate Controller emailed the Spine CFO an aging schedule identifying that as 

of June 30, 2012 approximately $4 million of amounts owed to OSI was over one year 

old.   

19. The aging schedule contained in this email, however, demonstrated that the allowance for 

doubtful accounts as of the second quarter of FY 2012 was only $1.6 million (or 40% of 

accounts receivable over 360 days old).  The Corporate Controller then wrote “what 

doesn’t make sense is that our policy is to reserve all amounts in the [over one year old 

bucket].” 

20. The Corporate Controller then forwarded the email to McCollum and wrote the 

following: 



5 
 

 

 

I spoke with [the Spine CFO] on this.  The rationale for not reserving all of the 

360+ bucket for [Spine] is that technically the receivable balance from [the 

Brazilian Distributor] is not >360 days old since they have extended terms in their 

contract.  The aging schedule is based on days past the invoice date for all 

[accounts receivable].  To further exacerbate the situation, [the Brazilian 

Distributor] could not sell the Implants inventory that we sold to them in 2011 

since we were delayed in sending them the instrument sets (that they needed to 

sell the Implants).  This one-year delay was caused by [ANVISA] who required 

us to send new instruments (as opposed to our original plan to move used 

instruments). 

21. The Corporate Controller further noted in the email that – based on discussions he had 

with the Spine CFO – the Brazilian Distributor planned to make a $4 million payment in 

December 2012 that would significantly reduce the 360+ day bucket in the year-end 

aging presentation.  

22. Through this email, McCollum was on notice that Orthofix had a significant outstanding 

receivable associated with implants for which there had been an at least one year delay in 

sending the corresponding instrument sets.   

23. McCollum, however, did not take steps to investigate the circumstances of the original 

transaction and to determine whether the revenue associated with the original transaction 

had been properly recognized.  As noted earlier, Orthofix improperly recognized $5 

million of revenue because the implants could not be used in patients without the 

instruments.  As such, payment timing and terms were contingent upon the instrument 

sets being made available and, therefore, revenue recognition was inconsistent with 

Orthofix’s accounting policy because it did not meet the fixed or determinable criteria or 

the collectability criteria. 

24. Moreover, McCollum subsequently made an improper Sarbanes-Oxley Section 302 

certification in Orthofix’s Form 10-Q for the third quarter of 2012.   

E. McCollum is Put on Notice of Issues Concerning Brazilian Distributor  

25. In December 2012, the Spine CFO learned that the Brazilian Distributor’s President had – 

in June 2012 – informed the then Spine President and Vice President of Global Sales and 

Development for the international portion of the Spine Segment (“Spine Sales VP”) that 

it would not pay $4 million of its amounts payable by the end of December 2012.  Rather, 

the Brazilian Distributor’s President informed the then Spine President and Spine Sales 

VP that it would only pay $1.6 million of its amounts payable by December 2012 and the 

remainder by February 2013. 

26. At this time, McCollum was no longer Orthofix’s CFO and now served as the President 

of Orthofix’s Spine Segment. 



6 
 

 

 

27. On December 1, 2012, the Spine CFO informed McCollum of the above information he 

learned, writing: 

[The Brazilian Distributor’s President] says below they made a payment agreement 

with [the then Spine President] . . . I have no idea what may have been promised.  I 

do know that I fought pricing and terms concessions, but those were ultimately given 

at some point despite my denials.  This was commonplace.  I was told that I was the 

decision maker on pricing and terms and then secretly overridden.  [The Spine Sales 

VP] did it all of the time – don’t know how much [the Spine Sales President] was 

involved. 

28. On December 7, 2012, the Brazilian Distributor’s President travelled to the U.S. to meet 

with the Spine CFO and Spine Sales VP.  At that meeting, the Brazilian Distributor’s 

President provided a Power Point presentation to the Spine CFO and Spine Sales VP with 

a detailed chronology of events on several transactions involving the Brazilian 

Distributor, including the implants-without-instruments transactions.   

29. The Spine CFO subsequently forwarded the Power Point presentation to McCollum.  

McCollum, however, failed to confirm that this Power Point presentation had been 

brought to the attention of the then Orthofix CFO nor did he separately confirm that the 

transactions outlined in the Power Point presentation had been discussed with the then 

Orthofix CFO. 

30. Moreover, McCollum failed to evaluate the impact that the information contained in the 

Power Point had on the revenue that the company had previously recognized and 

disclosed in its financial statements when he served as Orthofix’s CFO. 

31. Ultimately, Orthofix filed its FY 2012 Form 10-K in March 2013 and took no steps to 

correct the revenue that it had previously improperly recognized on the implants-without 

instruments and other transactions with the Brazilian Distributor. 

F. Orthofix’s Restatement 

32. Orthofix materially misstated several of its annual and quarterly filings and 

corresponding earnings releases, failed to make and keep books and records which, in 

reasonable detail, accurately and fairly reflected the transactions and dispositions of the 

assets of the issuer, and failed to devise and maintain a system of internal accounting 

controls sufficient to provide reasonable assurance that transactions are recorded as 

necessary to permit the preparation of financial statements in conformity with generally 

accepted accounting principles.   

33. Accordingly – in late March 2014 – Orthofix restated its financial statements for the first 

quarter of fiscal year 2013, all quarterly and annual periods in fiscal years 2012 and 2011, 

and the annual period for fiscal year 2010 as a result of misconduct.  Orthofix also 

acknowledged certain material weaknesses in its internal control over financial reporting. 



7 
 

 

 

G. McCollum’s Compensation 

34. During the 12-month periods that followed the filing of the periodic reports requiring 

restatement, McCollum received bonuses and has not reimbursed those amounts to 

Orthofix. 

VIOLATIONS 

35. Exchange Act Section 13(a) and Rules 13a-1, 13a-11, and 13a-13 thereunder require 

issuers to file such periodic and other reports as the Commission may prescribe and in 

conformity with such rules as the Commission may promulgate.  Exchange Act Rules 

13a-1, 13a-11, and 13a-13 require the filing of annual, current, and quarterly reports, 

respectively.  Rule 12b-20 of the Exchange Act requires issuers to add such further 

material information, if any, as may be necessary to make the required statements, in the 

light of the circumstances under which they are made not misleading. 

36. Exchange Act Section 13(b)(2)(A) requires issuers to “make and keep books, records, 

and accounts, which, in reasonable detail, accurately and fairly reflect the transactions 

and dispositions of the assets of the issuer.”  Exchange Act Section 13(b)(2)(B) requires 

issuers to devise and maintain a system of internal accounting controls sufficient to 

provide reasonable assurances that transactions are recorded as necessary to permit the 

preparation of financial statements in conformity with generally accepted accounting 

principles. 

37. Exchange Act Rule 13b2-1 prohibits any person from, directly or indirectly, falsifying or 

causing to be falsified, any book, record, or account subject to Exchange Act Section 

13(b)(2)(A). 

38. Exchange Act Rule 13a-14, among other things, requires each principal executive, and 

principal financial officer to certify in each quarterly and annual report filed under 

Section 13(a) of the Exchange Act that such officer and the issuer’s other certifying 

officer have designed internal control over financial reporting, or caused such internal 

controls over financial reporting to be designed under their supervision, to provide 

reasonable assurance regarding the reliability of financial reporting and the preparation of 

financial statements for external purposes in accordance with GAAP. 

39. Section 304 of the Sarbanes-Oxley Act of 2002 requires the chief executive officer or chief 

financial officer of any issuer required to prepare an accounting restatement due to material 

noncompliance with the securities laws as a result of misconduct to reimburse the issuer 

for:  (i) any bonus or incentive-based or equity-based compensation received by that person 

from the issuer during the 12-month periods following the false filings; and (ii) any profits 

realized from the sale of securities of the issuer during that 12-month periods.  Section 304 

does not require that a chief executive officer or chief financial officer engage in 

misconduct to trigger the reimbursement requirement. 



8 
 

 

 

40. As a result of the conduct described above, McCollum violated Exchange Act Rules 13a-

14 and 13b2-1, Sarbanes-Oxley Act Section 304(a) and was a cause of Orthofix’s 

violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 12b-

20, 13a-1, 13a-11, and 13a-13 thereunder. 

IV. 

In view of the foregoing, the Commission deems it appropriate to impose the sanctions 

agreed to in Respondent’s Offer. 

Accordingly, pursuant to Section 21C of the Exchange Act, it is hereby ORDERED 

effective immediately that McCollum cease and desist from committing or causing any 

violations and any future violations of Exchange Act Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), 

and Rules 12b-20, 13a-1, 13a-11, 13a-13, 13a-14, and 13b2-1 thereunder and Section 304(a) of 

the Sarbanes-Oxley Act. 

A. Within 30 days of the entry of this order, McCollum shall pay a civil money 

penalty of $35,000. 

B. Moreover, McCollum shall, within 30 days of the entry of this order, reimburse 

Orthofix for a total of $40,885 in Orthofix bonuses, other incentive-based or equity-based 

Orthofix compensation pursuant to Section 304(a) of Sarbanes-Oxley Act. 

C. If timely payment is not made, additional interest shall accrue pursuant to 31 

U.S.C. § 3717. 

D. Payment must be made in one of the following three ways: 

(1) Respondent may transmit payment electronically to the Commission, which 

will provide detailed ACH transfer/Fedwire instructions upon request; 

(2) Respondent may make direct payment from a bank account via Pay.gov 

through the SEC website at http://www.sec.gov/about/offices/ofin.htm; or 

(3) Respondent may pay by certified check, bank cashier’s check, or United 

States postal money order, made payable to the Securities and Exchange 

Commission and hand-delivered or mailed to: 

Enterprise Services Center 

Accounts Receivable Branch 

HQ Bldg., Room 181, AMZ-341 

6500 South MacArthur Boulevard 

Oklahoma City, OK 73169 

Payments by check or money order must be accompanied by a cover letter identifying the 

Respondent in these proceedings, and the file number of these proceedings; a copy of the cover 



9 
 

 

 

letter and check or money order must be sent to Antonia Chion, Division of Enforcement, 

Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-5720. 

E. Pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended, a Fair 

Fund is created for the penalties referenced in paragraph IV.A above.  This Fair Fund may be added 

to or combined with the fair fund established in In the Matter of Orthofix International, N.V., (AP 

File No. 3-17791; Release No. 10281, January 18, 2017) and/or may be added to or combined with 

fair funds established for the civil penalties paid by other Respondents for conduct arising in relation 

to the violative conduct at issue in this proceeding or the Orthofix proceeding, in order for the 

combined fair funds to be distributed to harmed investors affected by the same violative conduct.  

Regardless of whether any such Fair Fund distribution is made, amounts ordered to be paid as civil 

money penalties pursuant to this Order shall be treated as penalties paid to the government for all 

purposes, including all tax purposes.  To preserve the deterrent effect of the civil penalty, 

Respondent agrees that in any Related Investor Action, it shall not argue that it is entitled to, nor 

shall it benefit by, offset or reduction of any award of compensatory damages by the amount of 

any part of Respondent’s payment of a civil penalty in this action (“Penalty Offset”).  If the court 

in any Related Investor Action grants such a Penalty Offset, Respondent agrees that it shall, 

within 30 days after entry of a final order granting the Penalty Offset, notify the Commission's 

counsel in this action and pay the amount of the Penalty Offset to the Securities and Exchange 

Commission.  Such a payment shall not be deemed an additional civil penalty and shall not be 

deemed to change the amount of the civil penalty imposed in this proceeding.  For purposes of 

this paragraph, a “Related Investor Action” means a private damages action brought against 

Respondent by or on behalf of one or more investors based on substantially the same facts as 

alleged in the Order instituted by the Commission in this proceeding.  

F. It is further ordered that, solely for purposes of exceptions to discharge set forth in 

Section 523 of the Bankruptcy Code, 11 U.S.C. § 523, the findings in this Order are true and 

admitted by Respondent, and further, any debt for disgorgement, prejudgment interest, civil 

penalty or other amounts due by Respondent under this Order or any other judgment, order, 

consent order, decree or settlement agreement entered in connection with this proceeding, is a 

debt for the violation by Respondent of the federal securities laws or any regulation or order 

issued under such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. § 

523(a)(19).  

By the Commission. 

   

  Brent J. Fields 

Secretary