Syncor Taiwan Pleads Guilty
A subsidiary of Woodland Hills-based Syncor International Corp. was fined $2 million Tuesday after pleading guilty to a single criminal charge of bribing Taiwanese officials, as authorities detailed an elaborate scheme dating to 1985 that included additional improper payments in four other foreign countries.
In a separate settlement requiring Syncor International to pay a $500,000 civil fine, the Securities and Exchange Commission charged that the firm improperly paid at least $600,000 to obtain business from doctors in Taiwan, Mexico, Luxembourg, Belgium and France.
The SEC said senior officers of Syncor’s foreign subsidiaries knew about and approved the payments, “in some cases with the knowledge and approval of Syncor’s founder.”
Monty Fu, who founded the nuclear-medicine concern, stepped aside as Syncor’s chairman last month when the company disclosed the questionable payments. Fu’s brother, Moses Fu, who had headed the company’s Taiwan-based Asian operations, also stepped down.
Neither was named in either of the government’s complaints.
Syncor Taiwan’s guilty plea and $2-million fine, which settled a case brought by the Justice Department, were approved in Los Angeles by U.S. District Judge Stephen Wilson.
The SEC complaint, filed in federal court in Washington, provides by far the most comprehensive account yet of the payment schemes, whose disclosure nearly derailed Cardinal Health Inc.’s agreement to acquire Syncor. The Justice Department’s complaint provides new details about the Taiwanese schemes as well.
The SEC said that from the time it began to operate in 1985, Syncor Taiwan paid “improper commissions” to doctors who controlled purchasing for hospital radioactive medicine departments. The payments, typically 10% to 20% of the bill, totaled at least $400,000, the SEC said.
“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,” the SEC said.
According to the SEC complaint, Syncor Taiwan in 1998 began paying improper fees to doctors at state-owned hospitals who in return referred patients to Syncor medical imaging centers. Syncor Taiwan paid at least $113,000 in such improper referral fees, which were “known to and approved by Syncor’s founder and chairman,” the SEC said.
The Justice Department said “the responsible officers” of Syncor Taiwan understood that without the improper payments, the purchases and referrals would not have been made.
Moses Fu could not be reached for comment.
Monty Fu, who has relinquished any role at Syncor as part of the company’s settlement with the government, hasn’t commented on the case. His attorney, Gordon Greenberg, declined to offer Fu’s version of events, but suggested that the government’s depiction of the case may be incomplete.
“No one should jump to any conclusions about Mr. Fu’s conduct based on Syncor’s resolution with the government,” Greenberg said.
The SEC also provided details of payments in other countries. Syncor’s Mexican subsidiary, to obtain or retain business, made $23,000 in improper payments to at least four doctors at government-owned hospitals in 2000 and 2001, including a personal loan that was never repaid, according to the SEC. It said Syncor Mexico also overbilled hospitals for supplies, kicking back excess payments to doctors, and improperly accounted for at least $200,000 in small incidental payments that were made.
Syncor’s Medcon Group, operating in Belgium, Luxembourg and France, made at least $45,000 in illicit payments and gifts in 2000 and 2001 to doctors at government-owned hospitals, according to the SEC. These included cash, computers, digital cameras, watches and expensive wines, the SEC said, adding that Medcon also sent inflated or fictitious invoices to medical practices and then rebated 80% of the practices’ payments to the doctors for personal travel and other gifts.
Monty Fu, 56, founded Syncor’s predecessor firm in 1974, introducing the concept of providing hospitals with centralized deliveries of short-lived radioactive substances to diagnose and treat diseases.
Last year, in naming Fu an “Entrepreneur of the Year” for the Los Angeles region, Ernst & Young described Syncor as “the undisputed leader in the radiopharmacy field.”
Both the Justice Department and the SEC allege violations of the Foreign Corrupt Practices Act, which bans the payment of bribes to foreign officials by U.S. companies and their subsidiaries, and also requires the companies to maintain accurate records of payments.
The SEC case says Syncor, in a scheme authorized by its chairman, violated the proper accounting requirements by recording some payments as advertising and promotion expenses.
Syncor said last week that Monty Fu will hand over enough Syncor stock to cover the total $2.5 million in penalties the company must pay to the Justice Department and SEC. He will also give up a $2.1-million severance payment as he leaves the company.
The settlements allow Syncor’s planned acquisition by Cardinal Health to proceed, although at a renegotiated price of less than $800 million in stock compared with about $870 million before the improper payments were disclosed Nov. 6.
Sources said that key factors in the deal included having the foreign subsidiary, Syncor Taiwan, which Cardinal plans to sell or close, plead guilty to criminal charges.
It also was necessary for Fu to step down voluntarily from the board, the sources said, since the matter otherwise would have required shareholders to be notified and to vote on the change.
Robert Bennett, a Washington attorney who helped negotiate for the company, said the Justice Department and the SEC were aggressive but also showed sensitivity to shareholders in reaching a settlement with Syncor in just four weeks.
The complaints do not name any individuals. The Justice Department said it was continuing its criminal investigation, and the SEC said it was continuing its civil probe.
Stuart Deming, a former federal prosecutor and SEC attorney who co-chairs an American Bar Assn. task force on foreign-corruption issues, said it was the first time a foreign subsidiary of a U.S. corporation had been prosecuted for the anti-bribery violations rather than the U.S. parent company.
Over the years, Syncor grew until it had 4,200 employees, delivering radioactive preparations to diagnose and treat diseases from 130 “nuclear pharmacies” in the United States and dozens overseas.
