A&O Shearman FCPA Digest | SEC v. Smith & Nephew plc (D.D.C. 2012)

Source Documents

Nature of Business
Smith & Nephew plc is a global medical company incorporated in England and Wales. It issued and maintained a class of publicly-traded securities which traded on the New York Stock Exchange. Smith & Nephew, Inc. (“S&N Inc.”) was a wholly-owned subsidiary of Smith & Nephew plc, and was a global manufacturer and supplier of orthopedic medical devices. S&N Inc. was incorporated in Delaware and headquartered in Memphis, Tennessee.

Influence to be Obtained
From about 1998 to about 2008, Smith & Nephew, through certain executives, employees, and affiliates, funded an offshore slush fund by selling products at full list price to a Greek distributor based in Athens and then paying the “distributor discount” to an offshore shell company controlled by the distributor. The distributor then paid cash incentives and other things of value to publicly‑employed Greek health care providers to induce the purchase of medical devices manufactured by Smith & Nephew. The funds were recorded as “marketing services” to conceal the true nature of the payments in the consolidated books and records of Smith & Nephew and its subsidiaries.

Enforcement
On February 6, 2012, the SEC filed a civil complaint against S&N plc. Without admitting or denying the allegations against it, S&N plc reached a settlement with the SEC and agreed to pay $5.43 million in disgorgement of profits, including prejudgment interest. On March 6, 2012, the court issued a final judgment in which the court permanently enjoined S&N plc from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(b) of the Securities Exchange Act of 1934 and ordered S&N plc to retain an independent compliance monitor for a period of 18 months to review its FCPA compliance program.

In a related criminal action, the DOJ entered into a three‑year deferred prosecution agreement with S&N Inc.