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Brazil prosecutors allege jailed GE executive helped company partake in medical cartel

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07/11/2018 | 08:55pm CEST
FILE PHOTO: The General Electric logo is pictured on the General Electric offshore wind turbine plant in Montoir-de-Bretagne

SAO PAULO (Reuters) - General Electric Co's chief executive for Latin America took part in a medical equipment price-fixing scheme while at the conglomerate, making it a member of an international health-care cartel, according to allegations in a document filed by federal prosecutors.

The executive, Daurio Speranzini Jr., was one of 20 people jailed last week in what prosecutors say was an arrangement among multinational companies Philips, Johnson & Johnson, and several others. They say the scheme involved bribing government health officials, in return for help in inflating prices for an array of medical gear such as magnetic resonance imaging machines and prosthetics.

While those arrests and the general allegations were widely reported last week, a close examination by Reuters of a 362-page court document filed with a Rio de Janeiro judge to gain approval to carry out arrest and search warrants shows that prosecutors also argue that GE was part of the group of companies that allegedly funneled bribes through a politically connected local medical supply firm.

That firm, Oscar Iskin, then passed varying percentages of the bribes to government officials to fix prices for medical equipment and other products, prosecutors assert.

“The situation takes on an even greater gravity given that even after the internal investigation (at Philips) that resulted in Speranzini’s departure from the company, he joined another company in the health sector (GE) in which he continued carrying out illicit practices relative to government contracts,” the document states.

The documents cited “robust evidence” that Speranzini “participated in the crimes of corruption, fraudulent bidding, and forming a criminal organization," adding, “there is also evidence that he attempted to cover-up the crimes so that regulating bodies would not find out."

In response to questions from Reuters, GE spokeswoman Jennifer Erickson said Monday that GE is “currently not aware of any improper conduct involving GE Healthcare and are committed to cooperating with authorities to the extent we are contacted.”

At the time of Speranzini’s arrest on July 4, GE in a statement said that the allegations refer to a period in which the executive was leading a different company, though did not specify which one, and added that GE is not the target of the investigation.

Alexandre Lopes, a lawyer for Miguel Iskin, the CEO of the supply firm, denied the allegations of price-fixing and passing of bribes, and said the company had improved the quality of care available to the general population.

Reuters was unable to locate a lawyer for Speranzini. There are no lawyers listed in the government documents, and GE declined to comment on anything related to the executive still listed on LinkedIn as an employee.

Prosecutors declined to comment beyond what was in the document, or elaborate on whether they had contacted GE and whether they were delving into its conduct as a target. They said in their filing in Rio de Janeiro that their investigation is ongoing and that they think it will involve more companies, more arrests and the uncovering of more fraud.

It was unclear from the document whether prosecutors believe GE had been participating in the cartel before Speranzini's arrival at the company, but the document asserts that he was central to GE’s involvement once he was there.

Federal prosecutors said in the document that Speranzini took part in the cartel first as the head of the Philips Healthcare operation in Latin America from 2004 until the end of 2010, when an internal whistleblower told Philips' compliance office about the fraud and he was fired after an internal probe. His firing and the internal probe at Philips have not been previously reported.

Philips spokesman Steve Klink told Reuters that they have been informed by the Brazilian authorities that the latest arrests are part of an investigation into the medical device industry in Brazil.

“Philips in Brazil, as well as other companies in the country, are subjects of the investigation. We believe that any allegation against Philips relates to a period that was many years ago,” he said.

Two months after being dismissed by Philips, Speranzini was hired by GE Healthcare and climbed the company ladder, becoming a vice president in Milwaukee before being named as GE's chief executive officer for Latin America in January. GE did not comment on Speranzini’s hiring.

Cesar Romero - the former No. 2 official at the Rio de Janeiro state health secretariat - states in his plea bargain testimony that Speranzini won contracts from Brazil’s National Traumatology Institute while at Philips and GE to provide medical equipment at inflated prices at least until the end of 2014, prosecutors said.

The National Traumatology Institute said they could not comment, referring questions to the federal Health Ministry. The Health Ministry did not respond to requests for comment.

According to prosecutors, Romero also testified that GE was part of what he called an “international bidding club,” which included other multinational health companies such as Philips.

Lawyers for Romero did not immediately return a call seeking comment. Informants in criminal investigations in Brazil are barred by law from talking to the press.

The investigation, code-named "Operation Resonance," is the latest outgrowth of Brazil's unprecedented four years of graft inquiries that have sent scores of powerful politicians and businessmen to prison and rocked the nation's elite, who enjoyed impunity in how they carried out their business.

The inquiry is tied to a long-running corruption scheme attributed to jailed former Rio state governor Sergio Cabral that snatched $100 million from public coffers, prosecutors said.

(Additional reporting by Toby Sperling and Alwyn Scott; Editing by Christian Plumb and Edward Tobin)

By Brad Brooks

Stocks mentioned in the article
ChangeLast1st jan.
GENERAL ELECTRIC COMPANY 0.44% 13.75 Delayed Quote.-21.55%
JOHNSON & JOHNSON -1.01% 127.8 Delayed Quote.-10.76%
ROYAL PHILIPS 0.43% 37.46 Delayed Quote.18.26%
ZIMMER BIOMET HOLDINGS -1.21% 112.38 Delayed Quote.-5.73%
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Financials ($)
Sales 2018 121 B
EBIT 2018 13 185 M
Net income 2018 6 782 M
Debt 2018 60 292 M
Yield 2018 3,51%
P/E ratio 2018 22,89
P/E ratio 2019 15,31
EV / Sales 2018 1,48x
EV / Sales 2019 1,35x
Capitalization 119 B
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John L. Flannery Chairman & Chief Executive Officer
Daniel C. Janki Treasurer & Senior VP-Global Operations
Jamie S. Miller Chief Financial Officer
Jim Fowler Chief Information Officer
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