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Feds, Medical-Device Makers Settle Corporate Fraud Case

Zimmer, J&J and Stryker are among the five companies inking deals with U.S. prosecutors.

Federal prosecutors settled with five medical-device companies for a combined $311 million after an investigation regarding shady recompense structures for product preference.

On Thursday, prosecutors said Biomet,

Johnson & Johnson's


DePuy Orthopaedics,

Smith & Nephew




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Zimmer Holdings


reached an agreement regarding the corporate fraud investigation into industry practices. Stryker is the only one that will not pay a fine as part of its agreement.

In March 2005, the orthopedic companies received subpoenas from the U.S. Department of Justice through the U.S. attorney's office in Newark, N.J., seeking information pertaining to consulting contracts, professional service agreements and other agreements by which orthopedic surgeons get so-called kickbacks.

The first to air its settlement Thursday, Zimmer Holdings, said it entered into a deferred prosecution agreement (DPA) with the U.S. Attorney's Office in New Jersey. The company will pay $169.5 million, which it expects to record as an expense in the third quarter, and will be subject to oversight by a federal monitor appointed by the U.S. Department of Justice for 18 months.

Zimmer -- which didn't admit wrongdoing, plead guilty to criminal charges or pay criminal fines as part of the settlement -- said the government agreed not to pursue any criminal charges against it if it complies with the aforementioned agreement. Also, the company entered a five-year "corporate integrity agreement" with the Department of Health and Human Services' Office of the Inspector General.

Like Zimmer, Johnson & Johnson, Smith & Nephew and Biomet have entered into DPAs and will be monitored for 18 months. J&J will pay $84.7 million, Smith & Nephew $28.9 million and Biomet $26.9 million -- all to settle government claims under the anti-kickback statute and the civil federal False Claims Act.

Stryker, which voluntarily cooperated with U.S. Attorney's Office before any other company, has inked a non-prosecution agreement and has agreed to be monitored for 18 months.

Zimmer was trading up 63 cents, or 0.8%, at $81.77; J&J was up 17 cents, or 0.3%, at $65.56, and Stryker was up 96 cents or 1.4%, at $68.86.