Former OtisMed Corp. (NYSE:SYK) CEO Charlie Chi admitted to intentionally distributing knee replacement surgery cutting guides after the company's application for marketing clearance had been rejected by the FDA. Mr. Chi and OtisMed entered their guilty pleas in Newark federal court.
To settle the criminal charges, OtisMed was fined $34.4M plus $5.16M in criminal forfeiture. In a separate civil settlement, the company agreed to pay $40M plus interest.
The cutting guides were used by surgeons during total knee arthroplasty or knee replacement surgery. OtisMed marketing the guide as a tool to help surgeons in making accurate bone cuts specific to the patient's anatomy based on magnetic resonance imaging performed prior to surgery. None of the claims regarding the OtisKnee device were evaluated by the FDA before the company included them in advertisements and promotional material.
On each of three counts, Mr. Chi faces a maximum penalty of one year in prison and a $100K fine, or twice the gain or loss from the offense.
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