Investing.com -- The former CEO and co-founder of OtisMed, a Northern California-based company, was sentenced to two years in federal prison for intentionally selling a medical device used in knee-replacement surgery after it was rejected by the Food and Drug Administration.
In December, Charlie Chi, 46 of San Francisco, pleaded guilty to three counts of distributing adulterated medical devices in violation of the federal Food, Drug and Cosmetics Act (FDCA) after having been told by the FDA, his board and legal counsel not to consummate the sale. Chi was also fined $75,000 and sentenced to an additional year of supervised release.
In August, 2005, the company was founded after Chi conceived the design of an orthopedic cutting guide aimed at helping aid surgeons during knee arthroplasty procedures. The procedure requires a surgeon to remove the ends of a patient's leg bones and reshape the remaining bones to allow for the insertion of an artificial knee implant.
Complications can arise if the cuts to the bones are not made at a precise angle. During a four-year period from 2006 until 2009, OtisMed sold 18,000 of its OtisKnee devices without FDA approval, generating revenue of more than $27 million, according to the Justice Department.
In September, 2009, the FDA denied a submission from OtisMed for approval, ruling that it failed to demonstrate the cutting guide was "as safe and effective as other legally marketed devices."
"Companies and individuals put the public health at risk by not complying with FDA regulatory requirements for the pre-market review of medical devices," Philip Walsky, acting director of the FDA’s Office of Criminal Investigations, said in a statement. "We will continue to investigate and bring to justice those who potentially endanger patient safety by distributing unapproved medical devices."
Last September, U.S. District Judge Claire Cecchi sentenced OtisMed to a criminal fine of $34.4 million and ordered the company to pay $5.16 million in criminal forfeiture. OtisMed also paid an additional $41.2 million to settle a civil suit related to the marketing of the device.
"Today’s sentencing of OtisMed’s CEO ought to send a clear message to others in positions of authority within the medical device and pharmaceutical industries: the Department of Justice will vigorously prosecute not only corporations, but also the individuals at their helm who are responsible for endangering public health and safety in pursuit of profit," Deputy Assistant Attorney General Benjamin Mizer, head of the Justice Department’s Civil Division, said in a statement.
OtisMed was acquired by Michigan-based Stryker Corporation (NYSE:SYK), one of the world's leading medical technology companies, in December, 2009.