Former CEO Sentenced for Selling Unapproved Medical Devices

A former CEO has been sentenced to two years in prison for intentionally distributing a medical device used in knee replacement surgery after its application for marketing clearance had been rejected by the Food and Drug Administration (FDA).

Charlie Chi, 46, of San Francisco, pleaded guilty in December 2014 to three counts of distributing adulterated medical devices in interstate commerce in violation of the federal Food, Drug, and Cosmetic Act (FDCA) after having been told by the FDA, legal counsel and his own board of directors not to do so.

U.S. District Judge Claire C. Cecchi in Newark, New Jersey, delivered Chi’s 24-month sentence today and also ordered him to serve one year of supervised release and to pay a $75,000 fine. In September 2014, Judge Cecchi sentenced OtisMed Corporation, now a subsidiary of Stryker Corporation, to a criminal fine of $34.4 million and ordered the company to pay $5.16 million in criminal forfeiture.

Stryker acquired the company after the criminal conduct for which he was sentenced today. In a related civil settlement, OtisMed agreed to pay approximately $41.2 million, including interest, to resolve its civil liability for submitting false claims to the Medicare, TRICARE, Federal Employees Health Benefits and Medicaid programs.

“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,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.

The defendant betrayed the trust of patients whose doctors were using his unapproved surgical device for a serious medical procedure, said U.S. Attorney Paul J. Fishman of the U.S. Attorney’s Office of the District of New Jersey. With everything else people have to deal with when they are facing surgery, they shouldn’t have to worry whether their doctor is using equipment that has been approved for use.

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