A Medical Device Daily
On July 14, 2009, the Securities and Exchange Commission (SEC) reported it filed settled Final Judgments against Dennis Kozlowski, the former chairman/CEO and Mark Swartz, the former CFO of Tyco International (Tyco; Pembroke, Bermuda), in the SEC's action arising from their violations of the federal securities laws while officers of that company.
The Final Judgments permanently enjoin Kozlowski and Swartz from violating, or aiding and abetting violations of, the antifraud, proxy statement, periodic reporting, books and records, and lying to auditors' provisions of the federal securities laws and permanently bar each of them from serving as an officer or director of a public company.
The SEC's complaint alleges that, from 1996 until June 2002, Kozlowski and Swartz failed to disclose hundreds of millions of dollars in executive indebtedness, executive compensation, and related party transactions that they received while at Tyco. As alleged in the complaint, Kozlowski and Swartz granted themselves undisclosed low interest and interest-free loans from the company that they regularly used for personal expenses and other unauthorized purposes. They repeatedly arranged to have many of these loans forgiven by Tyco. They also engaged in undisclosed related party transactions. In violation of the federal securities laws, Kozlowski and Swartz failed to disclose their indebtedness, loan forgiveness, and related party transactions and caused Tyco to fail to disclose those items in its proxy statements and annual reports.
The proposed Final Judgments also bar Kozlowski and Swartz, pursuant to Section 20(e) of the Securities Act and Section 21(d)(2) of the Exchange Act, from serving as officers or directors of a public company.
The proposed Final Judgments are subject to the approval of the U.S. District Court for the Southern District of New York.
In 2005, a New York State court sentenced Kozlowski and Swartz to prison terms of 8 1/3 to 25 years for their roles in the Tyco fraud (Medical Device Daily, June 21, 2005). Pursuant to their criminal convictions, Kozlowski and Swartz also paid about $134 million in restitution to Tyco and criminal fines of $70 million and $35 million, respectively. On October 16, 2008, the New York Court of Appeals affirmed Kozlowski's and Swartz's convictions. On June 8, 2009, the US Supreme Court denied a petition by Kozlowski and Swartz for a writ of certiorari.
In other legalities, Endoscopic Technologies (San Ramon, California) agreed to pay the U.S. $1.4 million to resolve civil claims in connection with the alleged promotion of its surgical ablation devices. Surgical ablation devices use focused energy to create controlled lesions or scar tissue on a patient's heart or other organs.
The Department of Justice said the settlement resolves allegations that the company marketed its medical devices to treat atrial fibrillation, a use that is not approved by the FDA. The government also alleged that the company promoted expensive heart surgeries using its devices when less invasive alternatives were appropriate advised hospitals to up-code surgical procedures using the company's devices to inflate Medicare reimbursements, and paid kickbacks to healthcare providers to use its devices. The U.S. asserted that by engaging in this conduct, the company knowingly violated the Food, Drug and Cosmetic Act and caused the submission of false and fraudulent claims in violation of the False Claims Act.
The allegations were made against the company in a lawsuit filed in the U.S. District Court for the Southern District of Texas under the qui tam provisions of the False Claims Act. The relator will receive a total of $210,000 as the statutory share of the settlement.
The Southern District of Texas has also unsealed four additional qui tam lawsuits filed by relators against other surgical ablation device manufacturers. The Justice Department said the U.S. continues to investigate those cases.