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Stock Option Grants For Doctors Results In FCPA Enforcement Action

[This post is part of a periodic series regarding “old” FCPA enforcement actions]

In March 2005, the DOJ announced [1] that Micrus (a medical device company based in California) agreed to non-prosecution agreement and to pay a $450,000 criminal penalty to resolve its Foreign Corrupt Practices Act liability. The conduct at issue largely focused on stock option grants provided to physicians at publicly owned and operated hospitals in France, Turkey, Spain, and Germany.

As stated in the three year NPA [2], “the Department believes that Micrus, through certain of its employees, agents or salespeople, corruptly authorized the offer, promise to pay and the payment of money and other things of value, and did, thereafter, offer, promise to pay and paid money and other things of value, to foreign government officials to influence them to purchase medical devices from Micrus.”

The NPA further states:

“In connection with sales to public and private medical facilities … between January 2002 and August 2004, Micrus entered into several types of arrangements with doctors, pursuant to which the doctors used or promoted Micrus products in exchange for payments, commissions or honoraria (the “foreign payments”). During that time, Micrus also granted to some of those foreign doctors options to purchase shares of Micrus securities (after those securities were issued to the public in an Initial Public Offering) (the “stock option grants”).

Those payments totaled approximately $1,400,000. Of that amount, approximately $105,000 was paid as part of an arrangement that clearly violated the FCPA and the law in the foreign jurisdiction where the payment was made, and an additional approximately $250,000 was comprised of payments for which Micrus did not obtain the necessary prior administrative or legal approval as required under the laws of the relevant foreign jurisdiction.”

Under the heading “Payments and Stock Option Grants to Dr. A,” the NPA states:

“From June 2003 to May 2004, Dr. A, a physician in a French public hospital center, received payments of $19,725 in cash, as well as stock option grants worth approximately $4,931 from Micrus. These payments were proportional to purchases made by the public hospital, and therefore intended to increase the sales of, Micrus’ medical devices to Dr. A’s government-operated hospital, and were not in compensation for services performed by Doctor A. The payments and option grants therefore violated the FCP A and French law.”

Under the heading “Stock Option Grants to Dr. B,” the NPA states:

“From May 2002 to June 2004, Dr. B, a physician in a French public hospital center and a member of the Micrus S.A. Scientific Advisory Board, received approximately $14,570 in stock option grants from Micrus. It was Micrus’ intention that the stock option grants were to be given in return for the performance of scientific advisory services by Dr. B, but the value of the options exceeded the value of the services performed. The value of the stock options granted in excess of the services performed were intended to increase the sales of Micrus’ medical devices to Dr. B’s government-operated hospital. The grants therefore violated the FCPA and French law.”

[3]

Under the heading “Payments to Dr. C,” the NPA states:

“From January through July 2004, Dr. C, a physician in a Turkish university hospital center, received $35,670 in consulting payments from Micrus. These payments were to maintain sales of Micrus medical devices to Dr. C’s government-operated hospital, and were not in compensation for services performed by the doctor.”

Under the heading “Payments to Dr. D,” the NPA states:

“In May and September 2002, Micrus paid $8,629 for English classes for Dr. D, a physician in a French public hospital center. These payments were not in return for the performance of services by Dr. D, and were intended to increase the sales of Micrus medical devices to Dr. D’s government-operated hospital.”

Under the heading “Stock Option Grants to Dr. E,” the NPA states:

“In January 2002, Dr. E, a physician at several Spanish public hospitals received approximately $10,800 in stock option grants from Micrus. It was Micrus’ intention that the stock option grants were to be given in return for the performance of consulting services by Dr. E, but the value of the options exceeded the value of the services performed. The value of the stock options granted in excess of the services performed were intended to increase the sales of Micrus’ medical devices to Dr. E’s government-operated hospitals. The grants therefore violated the FCPA and Spanish law.”

Under the heading “Stock Option Grants to Dr. F,” the NPA states:

“In June 2003, Dr. F, a physician in a German public hospital center and a member of the Micrus S.A. Scientific Advisory Board, received approximately $10,800 in stock option grants from Micrus. It was Micrus’ intention that the stock option grants were to be given in return for the performance of scientific advisory services by Dr. F, but the value of the options exceeded the value of the services performed. The value of the stock options granted in excess of the services performed were intended to increase the sales of Micrus’ medical devices to Dr. F’s government-operated hospital. Furthermore, such grants violate the FCP A and German law.”

According to the NPA, Micrus (from its inception through August 2004) “did not have an FCPA compliance program in place.”

According to the DOJ, the NPA was appropriate for the following reasons:

(a) Micrus’ voluntary disclosure to the Department of the conduct involved in the Foreign Transactions and related conduct;

(b) Micrus’ prompt disciplinary action respecting the officers and employees primarily responsible for the conduct at issue in the Foreign Transactions;

(c) Micrus’ on-going cooperation with the Department in the Department’s investigation; and (d) the absence of any prior FCPA-related or other criminal history at Micrus.

As a condition of settlement, Micrus agreed to retain a compliance monitor for three years.

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