SEC Penalizes Becton, Dickinson & Co. $175M for Misleading Investors

Becton, Dickinson, and Company (BD), a medical device manufacturer, has settled with the Securities Exchange Commission (SEC) concerning charges of misleading investors about the regulatory risks involving its Alaris infusion pump and overstating its financial results.

Cooley’s Cydney Posner writes that SEC Administrative Proceedings revolved around BD’s failure to disclose the lack of FDA clearance for software updates to the Alaris pump, which posed risks to patients and investors alike.

The $175 million settlement includes mandatory improvement of compliance procedures.

BD’s Alaris infusion pump, a Class II medical device, required FDA clearance for significant software modifications. In 2016, BD’s experts knew that cumulative changes necessitated new clearance. However, the company prioritized business expediency, delaying comprehensive clearance submissions.

By 2018, the FDA had rejected BD’s partial submissions and flagged noncompliance, prompting the company to withdraw its application. However, it continued selling the device and further compounded the issue by failing to address over 140 software flaws, some of which had serious implications for patient safety.

Despite internal awareness of regulatory risks, BD provided investors with generic disclosures, failing to reveal the full extent of potential FDA actions.

The SEC found BD violated multiple securities laws, including antifraud provisions and internal control requirements. BD misrepresented its regulatory compliance, overstated Q4 operating income by 82%, and concealed the FDA’s “violative” assessment of Alaris.

The company also failed to disclose a $50 million recall cost and misled investors regarding revenue forecasts. The SEC imposed a $175 million penalty and required BD to appoint an independent compliance consultant to rectify deficiencies.

This case illustrates the importance of accurate disclosures regarding regulatory risks, particularly for companies in highly regulated industries. Clear communication with stakeholders about material risks is critical to maintaining investor trust and avoiding significant legal and financial repercussions for misleading investors.