Regulators Investigate CryoLife AccountingAug 20, 2002 | FT.Com
CryoLife, the embattled human-tissue processing group, was handed a new federal headache yesterday as US regulators launched an investigation into its accounting and securities trading.
The nation's largest processor of donated implantable human tissue said the US Securities and Exchange Commission had requested information related to last week's Food and Drug Administration recall announcement.
Last Wednesday, the FDA barred from sale a significant part of CryoLife's business, over concerns that the company could not ensure the transplanted tissue did not contain bacteria or fungi.
The agency ordered the recall and destruction of CryoLife non-heart valve tissues processed after October 3 last year.
The affected products, including cartilage, tendons, arteries, veins and some heart tissue, account for about 35-40 per cent of its turnover.
But concern also extends to other lines. The FDA said it was investigating CryoLife heart valves, which are used in 70 per cent of US replacements. CryoLife's shares fell 79 per cent in two days following the FDA order to about $2 per share. Its shares had traded as high as $40 and more last September.
The company said yesterday that it had received a letter from the SEC informing it of an investigation and a subpoena for data.
The SEC has requested information back to last September.
The investigation's target includes "accounting for the possible recall and trading in CryoLife securities", the company said.
However, the inquiry is still at a preliminary stage and the agency has not accused the company of any wrongdoing.
CryoLife said it would co-operate fully with the SEC investigation.
It has appealed against the FDA order and asked for modifications to it.
The FDA's decision stemmed in part from a death connected with implanted CryoLife tissue. In November, a patient died after receiving tissue during knee surgery.
The agency said the company failed to follow Center for Disease Control recommendations or FDA procedures to prevent contamination.
It also said it confirmed that the company had distributed tissue from a donor after confirming the presence of infection.
The FDA added that symptoms from an infected tissue transplant would appear quickly, so patients receiving tissue in recent surgical procedures were unlikely to be at risk.
The company is also the subject of a class-action shareholder lawsuit.