Risk & Compliance

Ethics Charges Delay Datascope Filing

Anonymous reports to the company's hot line have named its chairman and CEO.
Stephen TaubFebruary 13, 2007

Datascope, which manufactures medical devices, announced that it will delay filing its most recent quarterly results while it investigates reports — including a series of charges against founder, chairman, and chief executive officer Lawrence Saper — made to its ethics hot line.

The company stressed that it will not be revising its results or its balance sheet.

Datascope elaborated that it installed an ethics line more than a decade ago so employees could report concerns anonymously. About two weeks ago, the company received a pair of reports concerning its operations in Europe.

One report alleged that a senior executive was using company funds to finance an affair with another employee; the other report alleged that Saper and the unnamed senior executive had engaged in irregular transactions with distributors.

The company stressed that in the ordinarily course of business, its internal audit department had recently reviewed Datascope’s principal foreign operation and did not observe any material irregularities. The company added, however, that its audit committee will conduct its own examination with the aid of independent forensic accountants.

The ethics line began heating up late last year. During the fourth quarter of 2006, the company received reports alleging that there were irregularities in Saper’s expense reports; that a member of his family was employed by the company but did not perform services; that he had engaged in unspecified sweetheart deals; that he paid himself dividends; that he was mentally unfit to manage the company; and that outside counsel had assisted him in concealing some of these activities.

An internal investigation uncovered that Saper’s son Adam was covered under certain Datascope medical plans while still a consultant (he is now an employee), that Saper received personal legal and accounting services at company expense, and that he received personal legal services from the company’s outside counsel free of charge.

According to a Datascope regulatory filing, “The members of the internal audit department, legal department, and chief financial officer alleged that the matters in question evidenced overrides of controls.”

Even so, the audit committee concluded that “there was no persuasive evidence that controls had been intentionally overridden.” Datascope also noted that the audit committee uncovered errors in certain practices by its human resources department but added that they do not amount to a material weakness in the company’s controls.

In addition, the company stated that according to CFO Scott Kantor, there was no material effect on Datascope’s financial condition as of December 31, 2006, or on the results of operations for the three-month and six-month periods ending on that date.

The filing also noted that Lawrence Saper had offered to reimburse the company for the premature inclusion of his son in Datascope’s medical plans.

The Montvale, New Jersey-based company will likely file its quarterly report “within a couple of weeks or sooner,” according to a source close to the company cited by NorthJersey.com.

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