Symmetry Resolves SEC Charges

Orthopedic device manufacturers must want to clear their collective consciousness this year. Since Jan. 1, four implant companies have settled federal lawsuits or are finalizing resolutions to long-standing investigations, resulting in hefty fines, guilty pleas and in some cases, corporate integrity agreements with the government.

Symmetry Medical Inc. has joined the cache of companies committed to clearing their names in 2012. The U.S. Securities and Exchange Commission (SEC) recently charged four former executives at a British subsidiary of Symmetry with accounting fraud and ordered two executives to pay back profits based on earnings stemming from a period previous to the alleged fraud.

A complaint filed in U.S. District Court in South Bend, Ind., charges Richard J. Senior, Matthew Bell, Lynne Norman and Shaun Whiteley—all of the United Kingdom—with violations of the federal securities acts. The four no longer work for Symmetry.

According to The Journal Gazette of Fort Wayne, Ind., the SEC complaint evolved from an internal investigation Symmetry conducted into accounting irregularities at its United Kingdom plant in 2007. The four defendants charged in the complaint allegedly hatched their scheme in 1999 while working for Thornton Precision Components, a company that was purchased by Symmetry in 2003. The SEC complaint accuses Senior, Bell, Norman and Whiteley of circumventing “various controls” to generate premature invoices for products that were neither completed nor ready for shipping. These premature invoices enabled the company to recognize revenue for sales that hadn’t officially taken place. When the products were actually completed and ready to ship, the defendants allegedly credited the invoices that had been generated prematurely and issued ones that were sent to customers for the first time, the SEC contended.

Upon its acquisition in 2003, Thornton Precision passed the bogus information on to Symmetry, which included the data in its own earnings reports to shareholders. The fraud ended in September 2007 when a manager at the United Kingdom subsidiary told Symmetry executives, according to the SEC complaint. Court documents claim Symmetry’s earnings fell significantly after it restated its earnings from the early and mid-2000s, plummeting anywhere from 39 percent to 421 percent. In fiscal 2005, for instance, Warsaw, Ind.-based Symmetry initially reported $31.8 million in income; after adjusting its figures for the fraudulent invoicing, the company discovered it had lost $9.9 million that year.

“The fraud caused Symmetry’s share price to be fraudulently inflated by as much as 20.4 percent, with a corresponding loss to Symmetry and its investors…of as much as $120 million in market capitalization,” SEC attorneys argued in the complaint.

Auditors Christopher J. Kelly and Margaret Hebb, employees at the United Kingdom branch of accounting behemoth Ernst & Young, have been punished for failing to properly audit Thornton Precision Components. According to The Journal Gazette, the two cannot practice before the SEC for at least two years (though the newspaper does not state when their exile begins).

In addition to the charges for the four former Thornton Precision (and Symmetry) employees and the banishment of the Ernst & Young U.K. auditors, the SEC has negotiated an agreement with two current Symmetry executives to reimburse the company and the SEC for bonuses they received while the invoice fraud was occurring. Brian S. Moore, president of business development, is paying back $450,000 in bonuses, incentive pay and stock profits to the company and SEC; Symmetry Chief Financial Officer Fred Hite, meanwhile, has agreed to pay a $25,000 penalty to the SEC and reimburse $185,000 to the company for failing to provide an internal audit status report about the U.K. subsidiary to Symmetry’s audit committee in the summer of 2006.

In a written statement to The Journal Gazette, Symmetry Board Chairman Craig Reynolds said the SEC settlement was consistent with the fraud that was purposely hidden from the company’s management. “We note that the SEC expressly recognized the remedial acts that were promptly undertaken by the company. We are glad that this matter is resolved on terms that we believe are in our shareholders’ best interests, including the lack of any penalty imposed on the company,” Reynolds’ statement read.

Though it was not the first to settle a federal investigation this year, Symmetry’s resolution of the accounting fraud scheme resulted in the most arrests. One of the first companies to succumb to its soul-searching this year was Stryker Corp., which had been accused of promoting the off-label use of two bone growth products, OP-1 Implant and OP-1 Putty. Prosecutors dropped 13 charges against the company’s biotechnology unit (Stryker Biotech) and all allegations against four former employees after the firm pleaded guilty in January to a single misdemeanor charge and paid a $15 million fine. Stryker took a fourth-quarter charge of three cents per share to pay for its settlement with the U.S. Attorney’s Office for the District of Massachusetts.

Smith & Nephew plc and Orthofix International N.V. joined the conscious-clearing club several weeks ago, resolving bribery allegations and violations of the Foreign Corrupt Practices Act. Smith & Nephew is paying more than $5.4 million to settle charges that a former distributor bribed public doctors in Greece for more than a decade, while its U.S. subsidiary, Smith & Nephew Inc., has agreed to pay a $16.8 million fine to the U.S. Justice Department. The company also agreed to maintain an enhanced compliance program and appoint an independent monitor for at least 18 months to review and report on the program.

Orthofix, on the other hand, is paying $43 million to close a federal investigation into its bone-growth stimulation business while its subsidiary, Orthofix Inc., is reportedly ready to plead guilty to obstructing a 2008 federal audit. Both entities are expected to enter into a five-year corporate integrity agreement with the U.S. Health and Human Services Department’s Office of Inspector General (OIG).

In addition to the near-resolution of the federal bone-growth stimulation investigation, Orthofix has reached an agreement in principle with the U.S. Attorney’s Office in Massachusetts to pay $32 million to resolve an investigation into its Blackstone Medical subsidiary (Orthofix bought Blackstone in 2006). Blackstone was named in a number of lawsuits and Orthofix received several subpoenas from various government agencies concerning allegations that the spinal implant maker violated the federal False Claims Act by providing allegedly inappropriate payments and other items of value to physician consultants, U.S. Securities and Exchange Commission filings show.


The company also reached an agreement in principle with the U.S. Justice Department to settle criminal violations of the Foreign Corrupt Practices Act that it voluntarily reported to the U.S. government in June 2010 concerning its former Mexican orthopedic distribution entity. In the first quarter of 2011, the company spent $3 million to establish an accrual in connection with this case based on the results of its own internal investigation and an analysis of similar Foreign Corrupt Practices Act resolutions.