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Industry-Wide Investigation Snares Wright Medical

This week, Wright Medical Group became the latest orthopedic device maker to disclose a government investigation into its overseas sales practices. The company's Form 8-K said its principal operating subsidiary, Wright Medical Technology, Inc., received notice from the Securities and Exchange Commission of an informal investigation regarding potential violations of the Foreign Corrupt Practices Act. Wright said, "We understand that several other medical device companies have received similar letters. We intend to fully cooperate with this informal investigation."

Tennessee-based Wright designs, manufactures and distributes orthopaedic implants and instrumentation worldwide. Its products include large joint implants for the hip and knee; extremity implants for the shoulder, elbow, hand, wrist and foot; and biologic products, including bone graft substitutes.

In their investigation of the orthopedic implant industry, the SEC and Justice Department want to know whether the companies bribed doctors employed by government-owned hospitals overseas to use their products. Biomet Inc., Stryker Corp., Zimmer Holdings Inc., Smith & Nephew plc and Medtronic Inc. disclosed similar FCPA investigations during 2007, after they settled U.S. domestic bribery cases. They've denied violating any foreign laws.

We've wondered if one or more of the device makers may be providing industry-wide information to the authorities. In its disclosure last October, Medtronic said its letter from the SEC about the investigation "notes that the Company is a significant participant in the medical device industry, and seeks any information concerning certain types of payments made directly or indirectly to government-employed doctors."

Industry-wide investigations are a new development for the FCPA. There hadn't been any until 2007, when it emerged that the DOJ and SEC were examining customs clearance and permitting practices across the oil and gas services sector, and the overseas sales practices of the leading orthopedic device makers. Simultaneous investigations create their own dynamics, and we've asked before whether companies that become potential targets might bargain for leniency by implicating their peers. We don't know if that's happened yet. But there are well-known rewards for companies that are the first to talk about their co-conspirators in price-fixing cases, for example, so it's certainly possible that we'll see similar behavior in FCPA investigations.

Wright Medical Group, Inc. trades on NASDAQ under the symbol WMGI.

View Wright's June 10, 2008 Form 8-K here.

View prior posts about medical device makers here.

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