UNITED STATES OF AMERICA
In the Matter of
ORDER INSTITUTING PROCEEDINGS
The Commission deems it appropriate to institute public administrative proceedings pursuant to Section 21C of the Securities Exchange Act of 1934 (the "Exchange Act") against Syncor International Corporation ("Syncor"), and such proceedings are hereby instituted.
In anticipation of the institution of these proceedings, Syncor has submitted an Offer of Settlement ("Offer") that the Commission has determined to accept.1 As set forth in the Offer, Syncor admits the jurisdiction of the Commission over it and over the subject matter of this proceeding. Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission, or to which the Commission is a party, and prior to a hearing and without admitting or denying the findings contained herein (except as to jurisdiction, as set forth above), Syncor consents to the entry of this Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order ("Order"). The Commission has determined that it is appropriate to accept the Offer from Syncor, and accordingly is issuing this Order.2
The Commission finds that:3
Respondent Syncor is a Delaware corporation with its headquarters in Woodland Hills, California. Syncor is a provider of radiopharmaceutical products and services both in the United States and, through various direct and indirect subsidiaries, in 18 foreign countries. Syncor's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and is listed on the NASDAQ National Market.
From at least the mid-1980s through at least September 2002, several of Syncor's foreign subsidiaries made at least $600,000 in illicit payments to doctors employed by hospitals controlled by foreign authorities. As described below, these illicit payments were made with the purpose and effect of influencing the doctors' decisions so that Syncor could obtain or retain business with them and the hospitals that employed them. Moreover, the payments were made with the knowledge and approval of senior officers of the relevant Syncor subsidiaries, and in some cases with the knowledge and approval of Syncor's founder and chairman of the board.
By making these payments through its subsidiaries, Syncor violated the anti-bribery provisions of the Foreign Corrupt Practices Act of 1977, as amended (the "FCPA"). Moreover, by improperly recording these payments - and similar payments made to foreign persons not affiliated with government-owned facilities - Syncor violated the books-and-records provisions of the FCPA. Finally, by failing to devise or maintain an effective system of internal controls to prevent or detect these violations of the FCPA, Syncor violated the internal accounting controls provisions of the FCPA.
Syncor has been doing business in Taiwan since 1985 through a subsidiary called Syncor Taiwan, Inc. Syncor Taiwan was and still is Syncor's largest overseas operation in terms of revenue. Among other things, Syncor Taiwan sells radiopharmaceutical products to both private and public hospitals in Taiwan, and owns and operates medical imaging centers in that country. Throughout the relevant period, the financial results of Syncor Taiwan were a component of the consolidated financial statements included in Syncor's filings with the Commission.
Throughout the time it has been in business, Syncor Taiwan has paid improper commissions to doctors who controlled the purchasing decisions for the nuclear medicine departments of certain hospitals, including some hospitals owned by Taiwan authorities, for the purpose of obtaining or retaining business with those hospitals. These improper commissions (typically between 10% and 20% of sales) totaled at least $400,000 from the inception of Syncor Taiwan through September 2002. During this period, the payment of these commissions was known to and approved by Syncor's founder and chairman, among others at both Syncor and Syncor Taiwan. In most cases, the commissions were paid in cash and hand-delivered to doctors by the brother of Syncor's chairman, who was the general manager of Syncor Taiwan during most of the relevant period until he was promoted in 1998 to manage all of Syncor's Asian operations. These commissions - along with similar commissions Syncor Taiwan paid to doctors at private hospitals in Taiwan - were improperly recorded as promotional and advertising expenses in the books and records of Syncor Taiwan.
Beginning in 1998, Syncor Taiwan also paid improper fees to certain doctors at hospitals owned by Taiwan authorities for referrals of patients to medical imaging centers owned and operated by Syncor Taiwan. These referral fees typically were based on a percentage (between 3% and 5%) of the service fees payable to each medical imaging center from the patients referred, and typically took the form of a cash payment that was hand-delivered to the referring doctor by a bookkeeper at the center after funds had been wire-transferred to the center for that purpose. During the relevant period, these improper referral fees to doctors at hospitals owned by Taiwan authorities totaled at least $113,000. The payment of these referral fees was known to and approved by Syncor's founder and chairman of the board, among others at both Syncor and Syncor Taiwan. Like the commissions described above, these referral fees - along with similar referral fees paid to doctors at private hospitals in Taiwan - were improperly recorded as promotional and advertising expenses in the books and records of Syncor Taiwan.
Syncor has been doing business in Mexico since 1995 through a subsidiary called Syncor de Mexico. In 1998, Syncor de Mexico acquired another Mexican radiopharmaceutical company whose customers were primarily public hospitals, and the two companies formally merged during 2001. During the relevant period, the principal business of Syncor de Mexico was the sale of radiopharmaceutical products and related medical equipment, and its financial results were a component of the consolidated financial statements included in Syncor's filings with the Commission.
During 2001 and 2002, Syncor de Mexico and its representatives made approximately $23,000 in improper monetary payments to at least four doctors at government-owned hospitals in Mexico, all for the purpose of obtaining or retaining business with those doctors and the hospitals that employed them. These payments took several different forms, including a personal loan to one doctor that was never repaid, and purported reimbursements of personal expenses claimed by several of the doctors. In at least two cases, moreover, Syncor de Mexico entered into "over-invoicing" arrangements with doctors. Pursuant to these arrangements, Syncor de Mexico would inflate an invoice and bill the doctor's hospital for a more expensive product than Syncor actually delivered. After the hospital paid the amount reflected on the inflated invoice, Syncor de Mexico would pay to the doctor the difference between the actual price and the inflated price, less Syncor de Mexico's tax liability on the sale.4
All of the foregoing types of payments were known to and approved by the general manager and others at Syncor de Mexico. Many of the payments were hand-delivered to the doctors by Syncor de Mexico sales representatives after the funds were wired to the sales representatives' bank accounts. Some of the payments were improperly recorded as business expenses in the books and records of Syncor de Mexico.
In addition to the above-described payments, Syncor de Mexico had a general practice of providing "support" - locally referred to as "apoyo" - to doctors with whom it did business, including many employed at government-owned hospitals. These support payments, generally between 1.5% and 3% of sales, mostly came in the form of sponsorships for the doctors' attendance at educational seminars, including payments for registration fees, travel, lodging, and meals. They also included gifts of computer equipment, software, office furniture, and medical supplies to doctors and their hospitals; sponsorships of social functions and fundraisers at the hospitals; funds provided to cover the cost of temporary employees at the hospitals; and payments made for outside testing when a particular hospital's laboratory equipment was not functioning properly. During the years 2000 through 2002, Syncor de Mexico made a total of at least $200,000 in support payments, which were arbitrarily distributed among several of Syncor de Mexico's business expense accounts in a manner designed to minimize their detection and disallowance by Mexican tax authorities. This improper characterization of the payments caused inaccuracies in the books and records of Syncor de Mexico.
3. Belgium, Luxembourg, and France
Syncor has been doing business in Belgium, Luxembourg, and France since September 2001 through four subsidiaries collectively operated as the Medcon Group. The primary business of the Medcon Group is the sale and export of radiological film to hospitals, doctors, and distributors, although it also sells a limited quantity of medical equipment. Customers of the Medcon Group include both government-owned and private hospitals. During the relevant period, the financial results of the Medcon Group were a component of the consolidated financial statements included in Syncor's filings with the Commission.
During 2001 and 2002, the Medcon Group made several different types of illicit payments to doctors employed by hospitals owned by foreign governments for the purpose of retaining business with these doctors and their hospitals. First, the Medcon Group gave some doctors generous gifts worth more than $750 each in the form of money directly transferred to doctors' bank accounts, computers, digital cameras, expensive wines, wristwatches, and leisure travel. In addition, pursuant to agreements with certain doctors, the Medcon Group occasionally sent inflated or fictitious invoices to medical practices and then rebated to the doctors approximately 80 % of the practices' payments, with the funds then being used to finance personal travel and other gifts for the doctors. During 2001 and 2002, such illicit payments and gifts to doctors at government-owned hospitals have totaled at least $45,000, and were known to and approved by the two principal executives of Medcon who manage the affairs of the business for Syncor.
The Medcon Group also improperly recorded many of these payments and gifts in its books and records. It likewise improperly recorded other gifts it gave, and commissions it paid, to various private parties to obtain competitive advantages, including: (i) a gift of a laptop computer given to an employee of one of its major suppliers to induce that supplier to overbid on a Belgian government contract that was consequently awarded to the Medcon Group; (ii) commissions of 5% to 10% paid to distributors of the Medcon Group's products in France, Germany, and Italy; (iii) a payment of approximately $33,000 to a distributor in Greece to induce him not to compete with the Medcon Group in Belgium and Luxembourg; (iv) commissions paid to employees of the Medcon Group's suppliers to preserve goodwill and to receive preferential access to products; and (v) commissions of approximately 80% paid to the principal of one distributor of the Medcon Group's products to induce him to purchase nearly-expired x-ray film that would otherwise have to be written off. The Medcon Group inaccurately recorded many of the above-described gifts and payments as capital or business expenses, apparently for the purpose of minimizing the risk of detection and disallowance by tax authorities. Moreover, the Medcon Group improperly recorded many of these payments and gifts in the books and records of Syncor's Luxembourg subsidiary rather than those of its Belgium subsidiary, where they properly belonged, apparently to take advantage of more favorable tax treatment and more relaxed oversight in Luxembourg.
C. Legal Analysis
The FCPA, enacted in 1977, added Exchange Act Section 30A to prohibit public companies from, among other things, making improper payments to foreign officials for the purpose of influencing their decisions in order to obtain or retain business. 15 U.S.C. § 78dd-1. The FCPA also added Exchange Act Section 13(b)(2)(A) to require public companies to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer, and added Exchange Act Section 13(b)(2)(B) to require such companies to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management's general or specific authorization; and (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and to maintain accountability for assets. 15 U.S.C. §§ 78m(b)(2)(A) and 78m(b)(2)(B).
As detailed above, Syncor, through several of its foreign subsidiaries, made numerous illicit payments to doctors at hospitals that were owned by foreign authorities, with the purpose and effect of influencing their decisions in order to obtain or retain business. Throughout the relevant period, the doctors at these hospitals were foreign officials within the meaning of the FCPA, and the hospitals were instrumentalities of foreign governments within the meaning of the FCPA. Syncor therefore violated the anti-bribery provisions of Exchange Act Section 30A. Moreover, in connection with these payments - and in connection with other payments and gifts made by the same Syncor subsidiaries to private parties in foreign countries - Syncor failed to make and keep accurate books, records, and accounts as required by Exchange Act Section 13(b)(2)(A). Finally, and as evidenced by the extent and duration of the improper payments to foreign officials and others made by several of its foreign subsidiaries, and the improper recording of these payments in the subsidiaries' books and records, Syncor failed to devise and maintain an effective system of internal controls to prevent or detect these violations of the FCPA, as required by Exchange Act Section 13(b)(2)(B).
Based on the foregoing, the Commission finds that Syncor violated Exchange Act Sections 13(b)(2)(A), 13(b)(2)(B), and 30A.
Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that Syncor:
(i) cease and desist from committing or causing any violations and any future violations of Exchange Act Sections 13(b)(2)(A), 13(b)(2)(B), and 30A; and
(ii) comply with the undertaking set forth in its Offer, whereby Syncor agrees that within 20 days after the date of this Order, Syncor's Board of Directors shall retain a qualified independent consultant (the "Consultant"), not unacceptable to the staff of the Commission, to review Syncor's internal controls, record-keeping, and financial reporting policies and procedures as they relate to Syncor's compliance with the anti-bribery provisions of the FCPA. Within 130 days after appointment, the Consultant shall complete its review and submit a report documenting its findings and making recommendations (the "Report") to Syncor's Board of Directors, a copy of which shall be transmitted contemporaneously to the staff of the Commission. Within 90 days after receiving the Report, Syncor's Board of Directors shall advise the staff of the Commission, in writing, of all decisions and determinations it has made as a result of the Report. In the event that Syncor is acquired by another company and becomes a wholly-owned subsidiary of the acquiring company before it has fully complied with all of the terms of this paragraph, Syncor's obligations under this paragraph shall remain in effect only as to Syncor as a wholly-owned subsidiary and only as to Syncor's Board of Directors as constituted following the acquisition. In the event that Syncor is acquired by another company and ceases to be a wholly-owned subsidiary of such acquiring company before Syncor has fully complied with all of the terms of this paragraph, the acquiring company shall assume Syncor's obligations under this paragraph.
By the Commission.
Jonathan G. Katz
1 In determining to accept Syncor's Offer, the Commission considered the full cooperation that Syncor has provided to the Commission staff during its investigation of the conduct described herein, and that Syncor has agreed in its Offer to continue to provide. The Commission also considered the fact that Syncor - after being alerted to the relevant conduct by another company that was conducting due diligence relating to a previously announced merger with Syncor - promptly brought this matter to the attention of the Commission's staff and the U.S. Department of Justice.
2 In addition, the Commission has contemporaneously filed a complaint in the United States District Court for the District of Columbia charging Syncor with violating the Foreign Corrupt Practices Act and seeking a civil penalty. Without admitting or denying the Commission's allegations, Syncor has consented to the entry of a final judgment by the Court that would require Syncor to pay a $500,000 civil penalty. See SEC v. Syncor International Corp., No. 1:02CV02421 (D.D.C), Lit. Rel. No. 17887 (Dec. 10, 2002).
3 The findings herein are not binding on anyone other than Syncor.
4 This type of "over-invoicing" arrangement was possible, in part, because many radiopharmaceutical products are delivered directly to doctors rather than to a hospital warehouse or general receiving area. As a result, the doctor is frequently the only person cognizant of what has actually been shipped.
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