Case 4:14-cv-00638-ALM Document 2 Filed 10/03/14 Page 1 of 13 PageID #: 14

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION
INSTITUTO MEXICANO
SOCIAL,

DEL

SEGURO

Plaintiff,
V.

ORTHOFIX INTERNATIONAL N.V.,

Defendant.

Civil Action No.

JURY TRIAL REQUESTED

IMSS FIRST AMENDED COMPLAINT

1.

The Instituto Mexicano del Seguro Social (IMSS) complains of Orthofix

International N.V. (Orthofix) as follows:

I. NATURE OF THE CASE

2.

In a related criminal action, Orthofix has admitted to bribing Mexican government

officials to sell more medical products. As a result of its corruption, Orthofix garnered obscene
profits, netting about $4.9 million in profits on about $8.7 million in sales of medical equipment.
3.

Orthofix paid bribes, which Orthofix referred to as chocolates, to officials of the

Mexican Social Security Institute, IMSS, an agency of the Mexican government. Orthofix used its
wholly-owned Mexican subsidiary, Promeca S.A. de C.V. (Promeca), to deliver the bribes.

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II. JURISDICTION AND VENUE

4.

This Court has jurisdiction pursuant to 28 U.S.C. 1331 (federal question) because

this Complaint raises claims under federal statutes.

5.

This Court has venue pursuant to 18 U.S.C. 1965(a) and (b) and 28 U.S.C.

1391(b), because a substantial part of the events and omissions giving rise to the claims presented
herein occurred in this District.

III. PARTIES
6.

IMSS is the Mexican Social Security Institute, a decentralized agency of the United

Mexican States. IMSS is responsible for providing medical care to the majority of Mexican citizens.
7.

Orthofix is a multinational corporation principally involved in the design,

development, manufacture, marketing and distribution of medical devices, and was incorporated in
Curacao. It sells its products around the world from facilities in the United States, the United
Kingdom, Italy, Mexico, and elsewhere. Worldwide, Orthofix employs more than 1,500 people. Its
current corporate administrative offices are in Lewisville, Texas. It can be served at National
Registered Agents, Inc., 3451 Plano Parkway, Lewisville, TX 75056.

IV. FACTUAL BACKGROUND

The Parties Business Relationship
8.

IMSS is a social-service agency of the Mexican government that provides public

services to Mexican workers and their families. It was created in 1943 by order of the Mexican
President, who continues to select IMSSs General Director.

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9.

IMSS provides health care services to tens of millions of people at hospitals that

IMSS owns and operates throughout Mexico. Mexicos government funds IMSS through taxation
and compulsory contributions.
10.

Orthofix is an orthopedic medical device company that provides surgical and non-

surgical medical products for various market sectors, such as spine, orthopedics, and sports
medicine. The company distributes its products both domestically in the United States and
internationally in multiple countries.
11.

Promeca was incorporated in Mexico and headquartered in Mexico City. Promeca

was an indirectly wholly-owned subsidiary of Orthofix that distributed Orthofixs medical devices in
Mexico. Promeca is no longer in business.
12.

During the period 2003 through 2010, Promeca sold Orthofixs products to

government and private hospitals in Mexico. Approximately 60% of Promecas revenues came from
IMSS.
13.

During this entire period, Promeca was subject to Orthofixs control. Orthofix was

responsible for ensuring Promecas continued solvency, and periodically infused Promeca with
additional capital. Promecas financial results were consolidated with Orthofixs corporate financial
statements, books, and records. Orthofix personnel based in the United States oversaw Promeca's
activities, reviewed and approved Promecas annual budgets, and had the authority to hire and fire
Promecas officers.

Chocolates
14.

From around 2003 through around March 2010, with Orthofixs knowledge,

Promeca and its employees paid more than $300,000 to Mexican government officials in return for
agreements with IMSS and its hospitals to purchase millions of dollars in Orthofix products.
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15.

Promeca personnel colloquially referred to the illicit payments as chocolates, a

term commonly understood within Orthofix to describe a suppliers improper payments to

purchasers of medical supplies and devices in exchange for an agreement to buy the suppliers
goods; in other words, bribes.
16.

In addition, between 2003 and 2010, Promeca expended approximately $80,050 on

gifts and travel packages, some of which were intended to corruptly influence IMSS to retain their
business. The various gifts included vacation packages, televisions, laptops, appliances, and in one
case, the lease of a Volkswagen Jetta.
17.

In all, the bribes totaled about $317,000.

18.

As a direct result of the bribes, Orthofix generated about $8.7 million in gross

revenues from sales of its products to IMSS hospitals.

19.

Of this amount, $4.9 million was Orthofixs profit.

The Original Bribery Scheme

20.

From at least 2003 to 2007, IMSS hospital officials were in charge of purchasing

medical devices for their respective hospitals.

21.

In around 2003, Promeca won contracts to sell Orthofixs products to two IMSS

hospitals, Magdelena de las Salinas and Lomas Verdes.

22.

Promeca won these contracts as a direct result of agreeing to pay certain hospital

officials a percentage of collected sales revenue generated through sales to the hospitals.
23.

From around 2003 until around 2007, Promeca delivered to a Mexican hospital

official at Lomas Verdes cash payments equal to as much as 5% of Promecas collected sales to that
hospital. Beginning in or around July 2007, Promeca stopped making cash payments to the official

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and instead leased a vehicle for the official to drive. The official drove that leased car until around
September 2010.
24.

These payments were bribes from Promeca to the official, paid in order to secure

contracts for Lomas Verdes purchase of Orthofix equipment.

25.

From around 2003 until around 2006, Promeca delivered to a Mexican hospital

official at Magdelena de las Salinas cash payments equal to as much as 10% of Promecas collected
sales to that hospital.
26.

These payments were bribes from Promeca to the official, paid in order to secure

contracts for Magdelena de las Salinas purchase of Orthofix equipment.

27.

From around 2006 until around 2007, Promeca delivered to another Mexican

hospital official at Magdelena de las Salinas cash payments equal to as much as 6% of Promecas
collected sales to that hospital.
28.

These payments were bribes from Promeca to the official, paid in order to secure

contracts for Magdelena de las Salinas purchase of Orthofix equipment.

The Modified Bribery Scheme

29.

In 2008, IMSS began purchasing medical products under a new national tender

system, where a special IMSS committee, rather than the individual hospitals, selected the winning
bidder who would supply IMSS nationwide.
30.

In response, Promeca established a new bribery system to ensure that Orthofix did

not lose its lucrative access to IMSS hospitals.

31.

To achieve this, Promeca made payments to three front companies, which were

controlled by certain IMSS officials.

32.

These payments were bribes.

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33.

Promeca won the national tenders for 2008 and 2009 as a result of the bribes.

34.

As promised to the corrupt officials, Promeca paid the front companies 5% and 3%,

respectively, of the collected sales from those tenders.

Orthofixs Involvement and Responsibility

35.

Orthofix supervised Promecas corruption from Orthofixs offices in the Eastern

District of Texas.
36.

Orthofixs involvement in the bribery scheme was such that it ultimately formally

accepted its responsibility in a deferred prosecution agreement with United States authorities. In that
agreement, Orthofix expressly admits, accepts, and acknowledges that it is responsible for the acts
of its officers, directors, employees, agents, and those of Orthofixs subsidiaries as charged in the
criminal Information filed by the United States government and in a Statement of Facts attested to
by Orthofix.
37.

Moreover, Orthofix expressly agrees that it shall not make any public statement,

in litigation or otherwise, contradicting the acceptance of responsibility by Orthofix.

38.

Orthofix is responsible for the acts of Promeca as alleged in this Complaint.

V. IMSS DAMAGES
39.

Orthofixs unlawful conduct harmed IMSS in numerous ways.

40.

First, Orthofix corrupted and bribed IMSS officials with funds culled from the profit

that Orthofix was reaping on IMSS contracts obtained through the bribes. The contract price,
therefore, was inflated at least by the amount of the bribes.
41.

At a minimum, this amount represented economic harm to IMSS.

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42.

Additionally, Orthofixs corrupt practices did violence to IMSS contracting process

and the healthcare providers ability to impartially evaluate potential medical device providers.
Because the Orthofix contracts were, in essence, non-competitive as a result of the bribes, IMSS
paid an artificially inflated price for the goods and services provided thereunder, resulting in lost
opportunities for expenditures of those funds to address Mexican citizens healthcare needs in other
areas. The effects of these harms have reverberated throughout the organization.
43.

Pursuant to Mexican law, Orthofixs breaches of the Mexican government

procurement procedures voided Orthofixs contracts, and therefore, Orthofix should be required to
return all proceeds received from IMSS, retaining at most the actual production cost of the
equipment it sold.

VI. CLAIMS FOR RELIEF

44.

Based on the foregoing facts, IMSS raises the following claims for relief:

A. First Claim for Relief RICO Section 1962(c)

45.

Orthofixs conduct described above violated the provisions of 18 U.S.C. 1962(c).

1. The enterprise was Promeca.

46.

The enterprise, Promeca, had a distinct purposeto sell Orthofixs products within

Mexico and to bribe IMSS officials in order to secure contracts for the sale of those products to
IMSS hospitals.
47.

The enterprise had a distinct structure. Promeca was a Mexican company, wholly

owned and controlled by Orthofix.

2. Orthofix conducted Promeca through racketeering activity.

48.

Orthofix controlled Promeca.

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49.

Every one of the bribes paid by Orthofix, through Promeca, to IMSS was a

racketeering activity including at least mail and wire fraud (18 U.S.C. 1341 and 1343), violations of
the Travel Act (18 U.S.C. 1952) and money laundering (18 U.S.C. 1956 and 1957).

a. Mail and Wire Fraud

50.

Orthofixs scheme necessarily involved multiple violations of the mail and wire fraud

statutes, because the scheme could not have functioned without phones, faxes, e-mails, and wire
transfers, including Orthofixs instructions and supervision of Promeca.

b. Money Laundering
51.

Orthofix committed money laundering and conspired with Promeca to commit

money laundering.
52.

With the intent to carry out the unlawful activity of bribery and violations of the

Foreign Corrupt Practices Act and the Travel Act, Orthofix concealed and disguised the nature,
source and control of money transferred to Promeca and to IMSS officials. 18 U.S.C. 1956(a)(3).
53.

Orthofix also committed money laundering when it received proceeds of Promecas

unlawful activities and concealed their nature and source on its books and records and public filings.
18 U.S.C. 1956(2).

c. The Travel Act

54.

Orthofix violated the Travel Act by traveling in interstate or foreign commerce and

by using facilities of interstate and foreign commerce (including, without limitation, mail, wire, email, and courier services) with the intent to promote, manage, establish, carry on, and facilitate the
promotion of bribery in violation of the Foreign Corrupt Practices Act, 15 U.S.C. 78dd.

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55.

Orthofix also violated the Travel Act by traveling in interstate or foreign commerce

and by using facilities of interstate and foreign commerce (including, without limitation, mail, wire,
e-mail, and courier services) to distribute the proceeds of its illegal conduct.

d. Bribery
56.

The systematic bribery by Orthofix was a racketeering activity.

18 U.S.C.

1961(1) (racketeering activity means (A) any act or threat involving bribery [under state
law].).

3. Orthofixs racketeering activity formed a pattern.

57.

Orthofixs racketeering activity constituted a pattern, over the course of many years,

in that the conduct had a central purpose of bribing IMSS officials in order to secure multiple
lucrative contracts.
58.

This pattern became the regular means of conducting business at Promeca and

Orthofix.

B. Second Claim for Relief RICO Section 1962(a)

59.

Orthofix received income from Promecas pattern of racketeering activity as set out

above and used that income to operate Orthofix in interstate and foreign commerce.

C. Third Claim for Relief RICO Section 1962(d)

60.

Orthofix conspired with Promeca to commit the violations described immediately

61.

Orthofix agreed to the unlawful purpose of the conspiracyto bribe IMSS officials

above.

in order to secure lucrative contracts by which IMSS would purchase Orthofix products.

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62.

Orthofix voluntarily joined in the bribery scheme, which affected interstate

commerce. Orthofix knowingly joined the conspiracy to bribe IMSS officials, doing so through a
pattern of racketeering by agreeing to commit and in fact committing the predicate acts listed above.

D. Fourth Claim for Relief Fraud

63.

Orthofixs false, material statements and omissions to IMSS were fraudulent.

64.

IMSS relied on Orthofixs false, material statements and omissions in order to

consummate business transactions with Orthofix.

65.

In contracts with IMMS, Orthofix, through Promeca, represented to IMSS that

Promeca was in compliance with Mexican laws prohibiting bribes.

66.

IMSS relied on these representations when approving contracts for the

purchase of Orthofix products.

67.

In fact, at the time of contracting and thereafter Orthofix was violating Mexicos

anti-bribery laws by bribing corrupt officials. Orthofix was aware that its representations to the
contrary were false at the time they were made.
68.

IMSS was damaged as a result, at least by overpaying on these contracts to the

extent those overpayments were redirected as bribes to the corrupt officials.

69.

IMSS is entitled to actual damages and punitive or exemplary damages.

E. Fifth Claim for Relief Civil Conspiracy to Commit Fraud

70.

Orthofix conspired with corrupt IMSS officials and Promeca executives to defraud

IMSS by overcharging for medical devices in order to pay bribes back to the corrupt officials.
71.

Orthofix and corrupt IMSS officials agreed on the unlawful purpose of the

conspiracy, collaborating in order to devise a scheme to pay bribes to the corrupt officials. The
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conspirators scheme including formulating ways to hide the bribes by mislabeling them as training
or other costs. Orthofix voluntarily joined the conspiracy in order to secure the lucrative sales
contracts.
72.

Orthofix and the corrupt officials took steps to implement the scheme, including

submitting false invoices and actually paying the bribes.

F. Sixth Claim for Relief Violation of Articles 50 and 60 of the Law of

Acquisitions, Leases and Services of the Public Sector (under Mexican law)
73.

Articles 50 and 60 of the Mexican Law of Acquisitions, Leases and Services of the

Public Sector prohibit bribes to public sector officials.

74.

Orthofix violated these laws by funneling bribes to corrupt hospital officials through

its wholly-owned and fully-controlled subsidiary, Promeca.

G. Seventh Claim for Relief Violation of Chapter 5, Article 1910 of the Mexican
Civil Code
75.

Chapter 5, Article 1910 of the Mexican Civil Code prohibits inducement of and

participation in breaches of fiduciary duties owed by IMSS officials to IMSS and the Mexican nation.
76.

Orthofix violated this provision when it, through Promeca, paid and facilitated

bribes that were paid to IMSS officials in order to secure contracts for the purchase of Orthofix
equipment. By accepting these bribes, the corrupt officials abandoned their fiduciary duties to IMSS
and the Mexican citizens served by the agency. Orthofix induced this abandonment of duty.

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H. Eighth Claim for Relief Breach of Contract (under Mexican law)

77.

Orthofix, through its wholly-owned and fully-controlled subsidiary Promeca,

breached its contractual duties to IMSS by orchestrating and paying bribes to corrupt hospital
officials.
78.

Specifically, Orthofix contractually represented, through its proxy Promeca, that it

was in compliance with Mexican law; namely, Articles 50 and 60 of the Law of Acquisitions, Leases
and Services of the Public Sector.
79.

This was a material representation in the contract that IMSS relied on in order to

approve the contract.

80.

Orthofix, through Promeca, breached the terms of the IMSS contracts by paying

bribes to corrupt officials, in violation of these laws.

81.

Further, by bribing IMSS officials and misrepresenting that activity in its contracts

and invoicing practices, Orthofix violated Article 8 of the Mexican Civil Code, which expressly
prohibits fraud in business contracts.

VII. JURY TRIAL DEMAND

82.

IMSS requests a trial by jury.

VIII. PRAYER FOR RELIEF

83.

IMSS prays that this Court award it all the relief to which it is entitled under law or

equity.

Dated: October 3, 2014

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Respectfully submitted,
By: /s/ Mark Maney
Mark Maney
Attorney-in-Charge
Maney & Gonzlez-Flix PC
Texas Bar No. 12898200
Federal ID: 11815
700 Louisiana Street
Suite 4545
Houston, Texas 77002
Telephone: 713.806.2500
mmaney@maneylaw.com
ATTORNEYS FOR IMSS

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