U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 21602 / July 27, 2010

Accounting and Auditing Enforcement Release No. 3159 / July 27, 2010

Securities and Exchange Commission v. General Electric Company; Ionics, Inc.; and Amersham plc, Civil Action No. 1:10-CV-01258 (D.D.C.)(RWR)

SEC Files Settled Books and Records and Internal Controls Charges Against General Electric Company and two Subsidiaries for Improper Payments to Iraqi Ministries Under the U.N. Oil for Food Program. GE Agrees to Pay Over $23.4 Million in Disgorgement, Interest, and Penalties

The Securities and Exchange Commission today filed Foreign Corrupt Practices Act books and records and internal controls charges against General Electric Company ("GE") and two GE subsidiaries — Ionics, Inc. (currently GE Ionics, Inc.) and Amersham plc (currently GE Healthcare Ltd.) — in the U.S. District Court for the District of Columbia. The General Electric Company, headquartered in Fairfield, Connecticut, participates in a wide variety of markets. The SEC alleges that two GE subsidiaries — along with two other subsidiaries of public companies that have since been acquired by GE — made $3.6 million in illegal kickback payments in the form of cash, computer equipment, medical supplies, and services to the Iraqi Health Ministry or the Iraqi Oil Ministry in order to obtain valuable contracts under the U.N. Oil for Food Program.

According to the Commission's Complaint:

From approximately 2000 to 2003, two GE subsidiaries, Marquette-Hellige ("Marquette") and OEC-Medical Systems (Europa) AG ("OEC-Medical"), made approximately $2.04 million in kickback payments in the form of computer equipment, medical supplies, and services to the Iraqi Health Ministry. Two other current GE subsidiaries, Ionics Italba S.r.L. ("Ionics Italba"), and Nycomed Imaging AS ("Nycomed"), made approximately $1.55 million in cash kickback payments under the Program prior to GE's acquisition of their parent companies. Nycomed was a subsidiary of publicly-registered Amersham plc, which was acquired by GE after the conduct at issue in the Complaint and is currently known as GE Healthcare Ltd. Ionics Italba was a subsidiary of publicly-registered Ionics, Inc., which was acquired by GE after the conduct at issue and is currently known as GE Ionics, Inc.

Marquette, based in Germany, manufactures and sells cardiology monitoring equipment and has been a GE subsidiary since 1998. Marquette entered into three Program contracts in which it either paid or agreed to pay illegal kickbacks in the form of computer equipment, medical supplies, and services after declining to make the payments in cash. The contracts were for the supply of disposable electrodes, transducers, and fetal monitors to the Iraqi Health Ministry. The contracts generated a combined gross profit to Marquette of $8.8 million. In order to obtain two of the contracts, Marquette's Iraqi agent made in kind kickback payments of goods and services worth approximately $1.2 million to the Iraqi Health Ministry in violation of UN regulations. In order to obtain the third contract, the agent offered to make an additional in-kind kickback payment worth approximately $250,000. The illegal kickbacks were made or offered with the knowledge and approval of Marquette officials.

OEC-Medical, based in Switzerland, manufactures and sells medical equipment. In 2000, OEC-Medical entered into a Program contract to provide C-Arms (C-shaped armatures used to support X ray equipment) to the Iraqi Ministry of Health. OEC made an in-kind kickback payment worth approximately $870,000 on the contract and earned a wrongful profit of $2.1 million. The OEC-Medical contract was negotiated by the same third party agent that handled the Marquette contracts. As was done with the Marquette contracts, the Iraqi agent agreed to make the payment on behalf of OEC-Medical in the form of computer equipment, medical supplies, and services, rather than cash. In order to conceal from UN inspectors the fact that the agent's commission had been increased to cover an illegal kickback, OEC-Medical and the agent entered into a fictitious "services provider agreement," purporting to identify services the agent would perform to justify his increased commission.

During the Program, Nycomed was a subsidiary of Amersham plc, which GE acquired in 2004. Nycomed's violations occurred prior to the 2004 acquisition. At the time of the violations, however, Amersham plc was subject to the Commission's regulatory jurisdiction because it listed American Depository Receipts on the NYSE. GE acquired the liabilities of Amersham plc, along with the assets, in the 2004 acquisition.

Between 2000 and 2002, Norway-based Nycomed entered into nine contracts involving the payment of cash ASSF kickbacks. The contracts were all direct agreements between Nycomed and the Iraqi Ministry of Health for the provision of Omnipaque and Omniscan. Omnipaque is an injectible contrast agent used in conjunction with X-rays; and Omniscan is a contrast agent used in conjunction with magnetic resonance imaging (MRI). Nycomed paid approximately $750,000 in kickbacks on the nine contracts and earned approximately $5 million in wrongful profits. The contracts were negotiated by Nycomed's Jordanian agent. The kickback payments were explicitly authorized by Nycomed's salesman in Cyprus. The Nycomed salesman increased the agent's commission from 17.5% to 27.5% of the contract price, and artificially increased the UN contract prices by 10%, all to cover the cost of the kickbacks.

During its involvement in the Program, Ionics Italba was a subsidiary of Ionics, Inc., which GE acquired in 2005. Ionics Italba's violations occurred prior to the acquisition. At the time of the violations, however, Ionics, Inc., was a publicly-listed company in the United States and was therefore subject to the Commission's regulatory jurisdiction. GE acquired Ionics' liabilities, along with the assets, in the 2005 acquisition.

Ionics Italba, based in Italy, manufactures and sells water purification equipment. Between 2000 and 2002, Ionics Italba paid $795,000 in kickbacks and earned $2.3 million in wrongful profits on five Program contracts to sell water treatment equipment to the Iraqi Oil Ministry. In the first of these contracts, the illegal kickback payment was concealed under a fictitious line item for "modification and adaptation at site of obsolete spare parts." When UN inspectors requested additional detail about the line item, officials at Ionics Italba passed the inquiry along to the Iraqi Oil Ministry. The Ministry's proposed response, which described services neither party intended to be performed, was incorporated nearly verbatim in a letter that Ionics Italba provided to the UN. Four of the five contracts were negotiated with side letters documenting the commitment of Ionics Italba to make cash kickback payments. The side letters were concealed from UN inspectors in violation of a Program requirement to provide all contract documentation for inspection and UN approval. On the majority of the Ionics Italba contracts, invoices provided by the sales agent included fictitious activities to justify the agent's inflated commission.

GE; Ionics, Inc.; and Amersham plc failed to maintain adequate systems of internal controls to detect and prevent the payments; and the defendants' accounting for these transactions failed properly to record the nature of the payments. GE; Ionics, Inc.; and Amersham plc, without admitting or denying the allegations in the Commission's complaint, consented to the entry of a final judgment permanently enjoining them from future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and ordering GE to disgorge $18,397,949 in wrongful profits, pay $4,080,665 in pre-judgment interest, and pay a civil penalty of $1,000,000.

The settlement with GE represents the Commission's fifteenth enforcement action brought in connection with the UN Oil for Food Program. In total, the SEC has recovered over $204 million in disgorgement of profits, prejudgment interest, and civil penalties in Oil for Food-related cases.

The Commission considered remedial acts promptly undertaken by GE and the cooperation the company afforded the Commission staff in its investigation. The Commission acknowledges the assistance of the Department of Justice, Fraud Section, and the United Nations Independent Inquiry Committee.

See Also: SEC Complaint

 
http://www.sec.gov/litigation/litreleases/2010/lr21602.htm

Last modified: 7/27/2010