1. Fraud and Accounting Problems

Taken together, fraud and accounting problems were responsible for one third of medical device firm defaults, causing a total of five defaults. In S&P's report, the consultancy notes that it did not expect to find that fraud would be a common cause of default for medical device companies. In the end, the prevalence of fraud in the sector is higher than in other industries because of the high prevalence of third-party payments in healthcare, according to S&P.

Notable cases of fraud included Liberty Medical Supply, the direct-to-consumer diabetes supply company that used veteran actor Wilford Brimley (pictured) in its TV commercials. U.S. Express Scripts Inc. acquired Liberty in 2012 through its $29 billion deal with Medco, then sold Liberty to its management team. The company was filing a Chapter 11 bankruptcy within a year amid $160 million-worth of claims over alleged Medicare and Medicaid overpayments made to Liberty between 2008 and 2010, according to S&P. After the default, CMS was only able to collect $32 million of its claim, including $15 million in previously withheld funds. A private equity firm bought Liberty's assets in 2014 and placed them in a new company that continues to operate under the same name out of Port St. Lucie, FL.

International Manufacturing Group Inc. (IMG), also known as RelyAid, meanwhile defaulted in 2014 after the West Sacramento, CA-based dental supply manufacturer's owner Deepal Wannakuwatte was charged with running a Ponzi scheme with more than 100 victims who were fleeced out of $109 million that Wannakuwatte spend on himself and his family, as well as lulling payments to investors to keep the scheme alive. Wannakuwatte claimed to have more than $125 million in U.S. Department of Veterans Affairs contracts, when his VA contract only amounted to up to $25,000 a year, according to federal prosecutors. Wannakuwatte, a former owner of the Sacramento Capitals tennis team, ended up pleading guilty to wire fraud in 2014 and was sentenced to 20 years in prison. 

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