‘Chocolates’ Were Bribes in Mexico, SEC Says

DALLAS (CN) - Orthofix, a medical device maker, will pay $5.2 million to settle charges that its subsidiary bribed Mexican officials for hospital contracts, the SEC said Tuesday.

The SEC filed the settled complaint against Orthofix International in Sherman, Texas Federal Court, alleging violations of the Foreign Corrupt Practices Act.

The SEC said Orthofix's Mexican subsidiary, Promeca, bribed officials at Mexico's Social Security Institute.

The bribes, which Promeca referred to as "chocolates," were paid in cash, laptop computers, televisions, automobiles and appliances, provided directly to Mexican government officials or indirectly through front companies that the officials owned, the SEC said.

"Once bribery has been likened to a box of chocolates, you know a corruptive culture has permeated your business," Kara Novaco Brockmeyer, Chief of the SEC Enforcement Division's Foreign Corrupt Practices Act Unit, said in a statement.

"Orthofix's lax oversight allowed its subsidiary to illicitly spend more than $300,000 to sweeten the deals with Mexican officials," Brockmeyes said in a statement.

The scheme lasted from 2003 to 2010, the SEC said.

Orthofix is based in Lewisville, a northwest exurb of Dallas.

"Promeca won the national tenders for 2008 and 2009 and paid the front companies 5 percent and 3 percent, respectively, of the collected sales from those tenders," according to the SEC complaint. "The front companies concealed these bribes by submitting false invoices, characterizing them as training and other promotional expenses that Promeca never received. Promeca falsely recorded the bribes on its books as payments for training courses, meetings and congresses, and promotional costs."

The complaint adds: "These improper payments, falsely recorded on the company's books as cash advances to Promeca executives or training and promotions expenses, generated approximately $8.7 million in gross revenues for Orthofix and resulted in illicit net profits of about $4.9 million."

The SEC said Orthofix broke the law by failing to accurately record the improper payments in its books and failing to maintain an adequate system of internal accounting controls to detect and prevent the bribes.

It said the company did inquire about the expenses, but did very little to investigate or diminish the excessive spending.

"Later, upon discovery of the bribe payments through a Promeca executive, Orthofix immediately self-reported the matter to the SEC and implemented significant remedial measures," the SEC said in its statement. "The company terminated the Promeca executives who orchestrated the bribery scheme."

Under a deferred prosecution agreement, Orthofix also agreed to pay $2.22 million in fines.

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