Ex-OtisMed CEO Chi draws 2 years

The former CEO of Stryker (NYSE:SYK) subsidiary OtisMed, Charlie Chi, drew a 2-year prison sentence last week after pleading guilty to distributing knee replacement surgery cutting guides without FDA clearance, the safety bureau and federal prosecutors said last week.

Stryker inherited the beef when it acquired OtisMed in 2009, later offering to pay $33 million to settle the federal investigation. The misconduct occurred before the acquisition and “without Stryker’s prior knowledge or acquiescence,” the prosecutors said. The company agreed to pay $80 million late last year to settle its part of the case, with Chi pleading guilty on 3 counts.

Prosecutors said OtisMed sold more than 18,000 of the devices between May 2006 and September 2009, for revenues of some $27 million. But after an application for 510(k) clearance from the FDA was rejected in 2009, OtisMed’s board unanimously voted to stop shipment. Chi disregarded that vote and ordered the shipments “after having been told by the FDA, legal counsel and his own board of directors not to do so,” according to the government.

“At Chi’s direction, OtisMed shipped approximately 218 OtisKnee guides from California to surgeons throughout the United States, including 16 to surgeons in New Jersey, a week after the FDA expressly denied OtisMed’s request for clearance,” according to the U.S. Justice Dept.

Judge Claire Cecchi of the U.S. District Court for New Jersey also sentenced Chi to a year of supervised release and fined him $75,000.

“I’d like to say I’m sorry,” Chi told the judge before his June 26 sentencing, according to NorthJersey.com. “I made a mistake, a serious mistake, and I know it. I apologize to the FDA and to Stryker.” He added, “I am embarrassed not only for myself, but for my family and my peers.”

Although Stryker was a distributor for OtisMed at the time, it was unaware of the FDA’s denial of clearance, prosecutors said last year.

“At the time the shipments were made in September 2009, Stryker executives were not aware that OtisMed and Chi had shipped cutting guides after the FDA had rejected the company’s application for marketing clearance for the device. Stryker, OtisMed’s parent corporation, cooperated with the government with regard to OtisMed’s pre-acquisition conduct throughout the investigation,” they said in the statement.

Chi pleaded guilty last December to 3 counts of introducing adulterated medical devices in interstate commerce.

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