OtisMed Corp., which Stryker acquired in 2009, and its former CEO pleaded guilty Monday to distributing knee-replacement surgery cutting guides after the FDA rejected the company's application for approval to do so. As a result, Stryker is on the hook for about $80 million in fines and settlements.

Stryker issued a statement Monday, saying the Department of Justice had "acknowledged that OtisMed's criminal conduct 'occurred prior to Stryker's acquisition of OtisMed and without Stryker's prior knowledge or acquiescence.'"

The government says OtisMed submitted a pre-market notification to the FDA in 2008 after previously telling doctors and others that it was exempt from such pre-market requirements. The FDA denied the submission, saying the company hadn't proved its device was as safe or effective as others. But Charlie Chi, PhD, formerly OtisMed's CEO, and others went ahead with shipments and even suggested ways for employees to hide the shipments from regulators, says the government.

Peter Harvey, Mr. Chi's lawyer, says the FDA is "criminalizing something about which they had knowledge from the day OtisMed started shipping these products."

Jim Burger