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Zimmer Biomet agrees to pay $30 million fine

January 20, 2017 GMT

Zimmer Biomet Holdings Inc. has agreed to pay the federal government more than $30 million to settle corrupt foreign practices charges, according to a deferred prosecution agreement filed with the SEC.

The Warsaw-based based orthopedic devices manufacturer admitted fault stemming from employee misconduct dating back to before the two rival companies combined. It will pay $24 million in criminal and civil penalties. The remainder is forfeited profit.

Zimmer Biomet disclosed in a Security and Exchange Commission filing dated Wednesday that it will pay by the end of this month using money set aside before Zimmer acquired Biomet about 18 months ago.

A federal investigation found that Biomet Inc. employees schemed to bribe Mexican government officials to allow unregistered and mislabeled dental implants to cross the border, according to the SEC filing.

Biomet employees also continued to use a Brazilian distributor despite a 2012 deferred prosecution agreement in which the company agreed not to do business with the firm.

Justice Department monitors found Biomet’s efforts to address corrupt practices fell short of its promises to federal officials.

As part of the latest agreement:

*Five employees have been fired or forced to resign for participating in the illegal scheme.

*One employee was fired for failing “to identify issues with the use of a prohibited distributor” and take appropriate steps to reduce risk.

*Two employees were disciplined for failing to effectively supervise those who engaged in the misconduct; actions included reducing their bonuses.

*Additional employees were given individualized training.

It’s unclear where the affected employees work, but the agreement included increasing company resources devoted to compliance, particularly in Latin America.

Zimmer Biomet’s agreement with federal officials doesn’t protect individuals from prosecution related to the investigation.

This is not the first time Biomet has been hit with millions in federal fines.

In 2012, the company agreed to pay almost $22.9 million in penalties to resolve an international kickbacks investigation that charged four Biomet subsidiaries with bribing doctors in Argentina, Brazil and China to use Biomet products between 2000 and August 2008.

The company’s latest settlement includes fines for criminal action alleged to have happened while it was being monitored following the 2012 deferred prosecution agreement.

Additionally, Biomet agreed in 2007 to pay the federal government $26.9 million to settle suspected anti-trust violations.

Warsaw’s Big Three orthopedics makers didn’t admit guilt in the case – but agreed to pay a combined $281.1 million. Zimmer’s share of that settlement, which was based on its market share at the time, was $169.5 million.

The same day that Zimmer Biomet filed the deferred prosecution agreement with the SEC, it filed notice of a major leadership change.

Robert Delp will become president of the Americas division effective Monday, joining the company’s executive team.

He was formerly vice president of U.S. sales.

Delp replaces Stuart Kleopfer, who will retire from the post. Kleopfer, who was a Biomet executive before the merger, will continue with the company in the short term to smooth the transition, officials said.

Zimmer Biomet’s connection to one of its investors also came under scrutiny this week during a Senate confirmation hearing on President-elect Donald Trump’s pick for health secretary.

Rep. Tom Price, R-Ga., was challenged by Democrats on potential conflict of interest related to Zimmer Biomet stock he bought last year.

The purchase came about the same time Price introduced legislation to suspend Medicare rules seen as problematic for orthopedics companies.

Trump transition spokesman Phillip Blando said Thursday that Price had been working on the legislation for months, that the stock purchase was made by his stockbroker as part of a broader rebalancing of his portfolio.

Blando added that “any effort to link Dr. Price’s investment portfolio to a company’s legal troubles is nonsensical, absurd, and insulting.”

At his hearing, Price sparred with Sen. Elizabeth Warren, D-Mass., over his involvement in the Zimmer Biomet purchase.

Price at one point noted that the stocks were bought by a broker and that he was not making the decisions, but he acknowledged the transactions were made on his behalf and he directed his broker to purchase shares in another company, Innate Immunotherapeutics.

sslater@jg.net

The Associated Press contributed to this story.