July 30, 2015

SEC Enforcement Spotlight – Mead Johnson Nutrition

By Molly Knobler

Mead Johnson Nutrition Company agreed to pay $12 million to settle SEC findings that it violated the Foreign Corrupt Practice Act (“FCPA”).  An SEC investigation found that employees of Mead Johnson’s Chinese subsidiary made improper payments to healthcare professionals at government-owned hospitals to induce them to recommend Mead Johnson’s infant formula to new or expectant mothers.  See SEC Press Release.

The SEC investigation found that improper payments were funded through “distributor allowance” funds.  Mead Johnson paid third-party distributors to market, sell, and distribute the company’s products in China.  But Mead Johnson employees continued to exercise some control over how the funds were spent and provided specific guidance to distributors on how to use the funds.  Cash and other incentives were subsequently paid to health care professionals in China hospitals to recommend Mead Johnson Nutrition products and to provide the company with contact information for patients who were new or expectant mothers so it could market its infant formula to them directly.

Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit, commented on the settlement, stating that, “Mead Johnson Nutrition’s lax internal control environment enabled its subsidiary to use off-the-books slush funds to pay doctors and other health care professionals in China to recommend its baby formula and give the company marketing access to mothers.”

The SEC’s order instituting a settled administrative proceeding finds that Mead Johnson Nutrition violated the books and records and internal control provisions of the Securities Exchange Act of 1934.  The company consented to the order without admitting or denying the findings and agreed to pay $7.77 million in disgorgement, $1.26 million in prejudgment interest, and a $3 million penalty.

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