The Securities and Exchange Commission (SEC) revealed settled charges against BD (Becton, Dickinson and Company) for repeatedly misleading investors about risks related to its continued Alaris infusion pump sales.

The company also settled charges of overstating its income by failing to record costs of repairing multiple software flaws with the pump. BD has agreed to pay a $175 million civil penalty.

BD had determined in 2016 that software changes made for the Alaris pump needed regulatory clearance from the U.S. Food and Drug Administration (FDA), according to the SEC’s order. BD didn’t have data needed for clearance, however, and generating data would delay the release of new features. The company continued selling the pump with no clearance.

By January 2019, BD identified over 25 flaws in the pump’s software that its experts determined had risks of the greatest potential harm to patients. Instead of informing investors that the issues raised the risk the FDA would limit BD’s ability to keep selling Alaris, the SEC said, BD made misleading statements in its reports about its regulatory risks.

The Alaris pump contributed about 10% of BD’s profits, according to the SEC.

In mid-November, BD changed its plan. The company would resume shipping Alaris with a new software version that excluded fixes that needed FDA clearance. “…during subsequent investor conferences in November and December 2019, BD echoed its prior misleading statements,” the SEC noted.

The order finds BD resumed shipping Alaris with the new software in December 2019 without any indication from the FDA that it concurred with this approach. After the FDA learned in January 2020 what BD had done, the agency warned that BD’s decision to resume selling Alaris was “misaligned with our previous conversations regarding your software issues and our mutual agreement that your firm should not be distributing devices to new customers.”

BD reinstated the ship hold and understood there would likely be a materially negative impact on the company’s revenue in fiscal year 2020. Nevertheless, during its subsequent annual shareholders meeting in late January 2020, BD again reaffirmed its prior fiscal year 2020 revenue guidance. BD finally told investors in February 2020 it had stopped shipping Alaris and would not resume normal sales until it had completed the lengthy FDA clearance process.

Its share price subsequently declined 12 percent. Following the announcement, one analyst texted a senior member of BD’s investor relations group, “I do not understand what happened here. 10 days ago we heard everything in pumps was ok and back on market and better than expected . . . I’m stunned and have a lot of angry people with pitchforks.”

“BD repeatedly painted a misleading picture of its Alaris infusion pump for investors and then doubled down by keeping them in the dark when the device’s issues came to a head with the FDA in late 2019,” said Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement. “Public companies have a fundamental duty to accurately disclose material business risks and should expect to be held accountable when they fall short in that regard.”

The updated Alaris infusion system received FDA clearance after its long commercial hold in July 2023.

The SEC’s order found BD materially overstated operating income in fiscal year 2019 by not properly accounting for costs related to fixing the software flaws. This caused the company to overstate its operating income in the fourth quarter of fiscal year 2019 by 82 percent.

BD issued a statement in response to the settlement regarding SEC reporting on the BD Alaris system, which was acquired by the company from CareFusion in 2015.

“The SEC Order, the findings of which BD neither admits nor denies, relate to matters concerning BD Alaris that occurred more than four years ago. As part of the settlement, BD has agreed to pay $175 million to the SEC, an amount that was reserved and disclosed in the company’s fiscal year 2024 Form 10-K and was contemplated in BD’s fiscal year 2025 cash flow plan. No financial restatements are required as a result of the settlement, and the settlement amount does not impact BD’s investments in innovation or its previously disclosed capital allocation strategy. BD is not updating its fiscal 2025 guidance as a result of the settlement. The company believes that settling with the SEC is the right course of action to fully resolve this matter and move forward.”

“The BD Alaris System is safe and effective and is a critical part of health care in the United States. The system has been used for many years to safely deliver IV therapies to patients, including throughout the COVID-19 pandemic. The updated BD Alaris System received 510(k) clearance from the U.S. Food and Drug Administration in July 2023, and the company continues to update its Alaris fleet.”

“BD has implemented a number of improvements to its operational and governance processes and related disclosure practices. BD is committed to operating with integrity and the highest ethical standards to produce high-quality, safe and effective products and serve as a trusted partner for its customers and their patients.”