As the polls stand, Socialist Francois Hollande is favorite to oust conservative President Nicolas Sarkozy, but backing from Bayrou in a May 6 second-round runoff could swing the outcome.

The leader of the Democratic Movement and education minister under Jacques Chirac became known as the “third man” in the 2007 election, when he finished a strong third in the first round.

So far Bayrou has not risen above fourth place and could yet be relegated to fifth. This time around, analysts say, the former history teacher and biographer of popular King Henry IV could make his mark by influencing the final outcome.

Bayrou, 60, will be hard pressed to win more than 14 percent of the vote in the first round of the two-part contest on April 22, putting him fourth, pollsters say. Latest surveys show him slipping back to 11-12 percent and suggest his support is softer than that of the other main candidates.

If he fails to reach the May 6 runoff, he has said he will endorse one of the two finalists. That could mean a lifeline for Sarkozy, whose personal unpopularity is a campaign handicap, or all-but-certain victory to Hollande.

Mariette Sineau, a political scientist at the CEVIPOF research institute, said voter momentum for Bayrou in January showed “this was going to be a man who will matter a lot. Everything is possible with him because he’s never very clear.”

After Bayrou came in third in 2007 with 18.57 percent on the first ballot, his supporters divided evenly, half voting for Sarkozy and half for Socialist Segolene Royal.

Hollande now scores around 30 percent in polls for the first round, with Sarkozy at 25 percent and Le Pen at 17.5 percent. Leftist Jean-Luc Melenchon is creeping up at 9 percent.

HARD TO TRANSFORM

Bayrou, the avuncular son of farmers and father of six, is well liked. In a recent Ipsos survey he was named France’s most popular politician, scoring 55 percent of favorable opinions, ahead of Hollande, who garnered 52 percent.

He is credited with foresight in the euro zone debt crisis, having warned of soaring budget deficits in his 2007 campaign. Besides alleviating the debt burden, he campaigns on improving education and supporting French industry.

Yet Bayrou – who decries the left-right polarization and what he calls the “Sarkohollandisation” of the 2012 election – has struggled to find enough support for his platform, which some see as lacking a sharp profile.

“People from the left like him well enough and people on the right like him pretty well too but it’s hard to transform that into votes,” said Gael Sliman, director of pollster BVA.

A sharp left-right divide that has existed ever since the 1789 French Revolution has left little room for a strong centre. Under the Fifth Republic, founded in 1958, centrists have often been fragmented into splinter groups caught between the statist Gaullist tradition and the pro-worker Left.

“This is a country where we’re used to being right or left. When someone says ‘I’m neither going to be right nor left, I’ll be the centre,’ it’s hard to make that space work,” Sliman said.

The last time centrists enjoyed power was in the late 1970s under President Valery Giscard d’Estaing, who founded the Union for French Democracy umbrella party uniting Christian Democrats, secularist Radicals and free-market liberal Republicans.

Bayrou was the rump UDF’s last leader, but it split in 2007 and he founded the Democratic Movement. Sarkozy encouraged the creation of a rival New Centre, with whom the president’s UMP party was allied in parliament after his 2007 victory.

Herve Morin, a former Bayrou aide, became leader of the New Centre and was tapped as Sarkozy’s first defense minister. Morin withdrew from the presidential race last week and said he would support Sarkozy.

Another popular centrist, former ecology minister Jean-Louis Borloo, decided in October not to run for president – leaving Bayrou as the last centrist standing in the field.

WHITHER TO WOO?

Bayrou has increased his anti-Sarkozy rhetoric in recent weeks as the president has tacked to the right to forestall a looming threat from the National Front’s Marine Le Pen.

Sarkozy’s calls to tighten access to unemployment benefits and crack down on illegal immigration opened “an election campaign that is divisive for the French people,” he said.

Earlier this month, Bayrou rejected the suggestion of an alliance from Finance Minister Francois Baroin, who reminded the centrist he had once governed with conservatives under Chirac.

He also scoffed at a statement by Interior Minister Claude Gueant that Bayrou “belongs to our family.”

Still, some political experts believe the staunch Catholic would not rule out an alliance with the president.

“If Bayrou thinks that with his support Sarkozy can win, he will support him, but it will cost him very dearly,” said a political scientist who declined to be identified because he sometimes advises the president’s UMP party.

If Sarkozy appears doomed, “he won’t take that risk, which doesn’t necessarily mean he will support Hollande,” he said.

He did not say what Bayrou could expect in return for backing the president. Judging from past French practice, that could range from a senior ministry, parliamentary seats for his party or even the premiership for crucial support, to as little as paying off the campaign debts of a minor candidate.

Hollande has said that if elected, he does not foresee bringing Bayrou into government. But Bayrou cannot go too far in attacking the Socialist, given his own followers’ preferences.

Sixty percent of Bayrou’s supporters could vote for Hollande in the runoff versus 40 percent for Sarkozy, said BVA’s Sliman.

But Bayrou’s voters are volatile, said analyst Sineau, and many could abstain in the runoff, complicating matters further for the two frontrunners, and Bayrou himself if he endorses a candidate his supporters don’t like.

“He’s in a very uncomfortable position,” she said.

(Reporting By Alexandria Sage; Editing by Paul Taylor/Janet McBride)

Sarkozy, who is running far behind Socialist challenger Francois Hollande in opinion polls for the election, said he would raise the VAT rate to 21.2 percent from 19.6 percent from October to fund a reduction in social charges on companies.

The move, which Sarkozy first alluded to in a New Year’s speech, is aimed at narrowing a competitiveness gap with Germany that is weighing on French growth, but it risks angering voters.

Among other measures, Sarkozy said he would set up an industrial investment bank in February with a billion euros in capital that will lend to small and medium-sized businesses struggling to obtain financing in today’s climate.

He also said companies with more than 250 employees would be obliged to take on interns to the level of 5 percent of total staff, as a way of helping reduce chronic youth unemployment.

Sarkozy said he had a duty as president to hold off announcing his re-election bid until as late as possible.

Yet his interview, broadcast live across eight TV channels, seemed timed to respond to a series of TV appearances and speeches last week by Hollande, who is campaigning at full throttle for the two-round election on April 22 and May 6.

“We have to protect employment, we have to defend it, value it,” said Sarkozy, who has thrown his focus onto growth and jobs since it became clear late last year that his deficit-cutting efforts could not save France from a credit rating downgrade.

“I am convinced this decision will save jobs and that it’s the only credible way to stop outsourcing,” he said of his so-called “Social VAT” plan to ease firms’ social contributions.

Sarkozy, who turned 57 on Saturday, said a financial transaction tax he is planning for August would set a tax of 0.1 percent on transactions in French securities.

He gave no detail on the tax, which France wants to be adopted across the European Union, but a government source later said it would target shares, not bonds, and could raise a billion euros annually.

Separately, Sarkozy announced a rise in taxes on individuals’ financial income such as interest and dividends.

UPS AND DOWNS

Sarkozy has worked hard in recent months to present a more austere and presidential demeanor following criticism of his informal and sometimes brash manner, and he stuck to a highly technical discourse on Sunday. He referred frequently to Germany as an economic model that France should be copying.

Setting the stage for what aides say will be an “honest” campaign that admits past mistakes yet seeks to show he is the safest pair of hands to steer France out of economic gloom, Sarkozy sounded a note of humility about his years in office.

“I accept the criticism,” he said, adding that there had been “ups and downs” and things he regretted.

Opinion polls show Sarkozy could lose a runoff against Hollande by 10 percentage points, and some in his UMP party believe he is suffering from his decision to leave launching his campaign until close to a March 16 deadline.

Hollande put in an able performance last week in a TV debate against Alain Juppe, Sarkozy’s foreign minister and one of the most talented politicians in his team, and he also unveiled a weighty and fiscally responsible economic plan.

In an attempt at one-upmanship, Sarkozy said France’s public deficit for 2011 could come in as low as 5.4 or 5.3 percent of gross domestic product, well below a target of 5.7 percent.

Yet illustrating the economic challenge ahead, the source said that the government will soon revise down its 1.0 percent forecast for 2012 growth.

Both Hollande and Sarkozy are seizing on the euro zone crisis and what many fear is a descent into recession in France as their key focus for the 2012 election.

While Hollande blames France’s woes on more than a decade of conservative leadership, Sarkozy is playing on his experience next to a man who has never been a government minister.

An Ifop poll published on Sunday showed, however, that many see Hollande as the best candidate to tackle debt reduction and unemployment, which is running at a more than 12-year high.

The poll found 46 percent of respondents trusted Hollande most to fight unemployment, versus 22 percent for Sarkozy, and 34 percent chose Hollande as the best to handle the public debt, versus 32 percent for Sarkozy.

Underlining a belief that Hollande could defeat Sarkozy, Angela Merkel’s Christian Democratic Union (CDU) party said on Saturday that the German Chancellor plans to actively back Sarkozy in his campaign by making joint appearances with him.

(Editing by Alison Williams)

The factory was the headquarters of Poly Implant Prothese (PIP), a leading international maker of breast implants founded by French entrepreneur Jean-Claude Mas. The inspectors found something odd: six discarded plastic containers of Silopren, a liquid silicone designed for industrial, not medical use, lined up along the outside wall of the production site.

A week later, gendarmes descended on the plant. Mas skipped out just ahead of them, eluding interrogation for nearly eight months, but his game was up. In the nearly two years since, the cheap silicone used in PIP’s fake breasts has continued to leach into women’s bodies. In France, 1,262 of the roughly 300,000 breast implants the company sold worldwide have split open in the past two years. PIP has been closed down, Mas has been arrested and put under investigation for alleged bodily harm, and French and European safety regulators have been thrust into an uncomfortable spotlight.

Mas, 72, a grocer’s son from the south of France, had no scientific training. Yet for the first decade of this century he was able to manufacture and sell faulty breast implants on international markets that he and some of his employees knew to be substandard, according to testimony given to French police and seen by Reuters.

The history of breast implants is littered with flawed devices, a colourful cast of intertwined players and billion-dollar lawsuits. Reuters reviewed hundreds of pages of police investigation transcripts and financial documents, and interviewed former PIP employees, the company’s suppliers, customers and health experts, to piece together this latest chapter in that history.

It is a tale of a haphazardly run and cash-strapped company that allegedly took desperate and sometimes deceptive steps to shave costs and hide the true ingredients of its devices. PIP’s efforts were made easier by a European regulatory regime that had been essentially outsourced to the very companies that are meant to be regulated.

Among the new details to emerge: PIP was able to save an estimated 1.2 million euros in one year by using the industrial-grade silicone in its implants, according to figures cited by police investigators. And it relied on crude, unscientific tests of product quality, such as judging silicone gel by sticking a finger in it, according to one former worker. Some 75 percent of its implants used the non-approved, cheaper gel, Mas told police.

“Maybe it’s shameful, but there you go,” Yves Haddad, a lawyer who represents both Mas and his now-defunct company, told Reuters at the end of December. “We live in a capitalist world.”

Mas, who declined to comment for this story, has said his products are harmless. After the health ministry advised Frenchwomen to have the devices removed, he told French radio network RTL last month that the decision was “criminal” and the health minister “needs to be committed.”

A CAREER IN SALES

Jean-Claude Florent Mas, born in Tarbes, near the Spanish border, was a salesman by temperament. He sold everything from life insurance to wine and dental equipment. He entered health care in the mid-1960s, working for various labs, including one that was bought by Bristol-Myers in the 1970s, where he stayed until 1980 as a salesman in the south of France. Mas’ attorney, Haddad, says his client was one of the firm’s top salesmen, although Bristol-Myers could not confirm that or say why he left.

It was after Bristol-Myers that Mas got involved in breast implants. He began working with a French plastic surgeon, Henri Arion, who had made France’s first breast implant in 1965, and was now selling saline implants under the name Simaplast.

It wasn’t a great start. Simaplast’s implants eventually were found to be prone to rupture, according to a 1999 study by U.S. non-profit Institute of Medicine. Simaplast morphed into a company named MAP – the precursor to PIP – where Mas said he performed every job from production to sweeping the floors. The small group of employees included a woman, Dominique Lucciardi, who would become Mas’ companion and mother of his two children. They would take turns filling the prostheses, he told police.

In 1991, aged 52, Mas launched PIP, a limited liability company and chose as its headquarters the site of the old Simaplast factory. In preparation, he had applied for a patent to sell implants containing silicone covered in polyurethane foam, he told police.

As he launched PIP, a breast implant scandal involving Dow Corning was sweeping across the United States. The American firm was found to have knowingly concealed safety concerns about its implants, and in 1992, the U.S. Food and Drug Administration called for a moratorium on the devices. Four years into PIP’s life, in 1995, France also banned silicone in breast implants, a ban that ended in 2001.

Mas found that by innovating, he could still bring products to market. He switched to implants filled with saline solution and launched a pre-filled version; other brands needed to be filled while the patient was on the operating table. PIP’s new product saved time, and surgeons liked it. PIP moved into the huge U.S. market in 1996, and soon the United States made up 40 percent of its revenue, according to company records.

AN ASYMMETRIC APPROACH

Opportunities for PIP grew on its home turf in 2001, when France lifted its ban on silicone implants, and the United States slowly began to approve more versions containing silicone gel, for which Mas already had a formula. “When I started PIP I brought this formula that I had kept,” he told police. “Why change it?”

Regulators had never examined nor approved that filler, but Mas insisted to his staff that it was perfectly safe, his ex-employees told Reuters.

Building on his innovations in saline implants, in 2002 Mas brought a new twist to silicone by launching an asymmetrical product that became popular with surgeons and patients, because it gave a more natural look than the “classic” style of implant, which resembled a perfectly round orb.

PIP’s approach to filling these implants was novel. On paper, the company said it used NuSil, a silicone blend made by a California company of the same name, which can be used in medical applications, including implantable devices. NuSil was founded by PIP’s former U.S. distributor, Donald McGhan, who is now in prison in Texas for an unrelated fraud conviction. The company has declined any comment on the PIP affair.

But in reality, PIP was mostly using Mas’ own non-approved PIP gel, which looked and felt exactly like NuSil, but cost a seventh of the price.

A litre of NuSil cost about 35 euros, versus 5 euros for PIP’s version, Thierry Brinon, PIP’s former technology head in charge of research and development, told police. Each implant on average used 330 cubic centimetres of gel. That meant it cost 11.55 euros to fill an implant with NuSil and a mere 1.65 euros to use PIP’s gel, a difference of 9.90 euros on each implant produced.

Claude Couty, the former chief financial officer of PIP, told police it cost an average total of 38 to 42 euros to manufacture an implant filled with PIP gel, versus 52 for an implant filled with NuSil. Investigators in the legal case file estimated that in one year alone, 2009, using PIP gel instead of NuSil saved the company nearly 1.2 million euros.

PIP sold implants to French surgeons for about 300 euros a piece. Abroad, the asking price was about 100 euros, according to former PIP staff and surgeons.

“This formula is perfect,” Mas told police. “It’s better than the formula for making NuSil.”

DECEIVING INSPECTORS

But because NuSil was a known quantity and his gel recipe was not, Mas concealed the implants’ ingredients from the regulator. Flaws in Europe’s regulatory system gave him a helping hand.

France has a government regulator, the Agence Francaise de Securite Sanitaire des Produits de Sante, or AFSSAPS, which has the power to remove products from the market but does not certify them. But the agency that certified PIP’s implants was actually a private company, based in Germany. TUV Rheinland first approved PIP’s saline implants in 1997. Its officials paid annual visits to the factory in La-Seyne-sur-Mer and announced them 10 days in advance, in accordance with European guidelines.

That gave PIP plenty of time to hide the truth. Ahead of TUV visits, workers would clear away evidence of the cheaper silicones PIP was using and put together a doctored version of documents that included no references to the use of unapproved silicone, Mas and ex-managers told police. All internal communications related to TUV’s visits were oral, said one former worker.

“Since 1997, we automatically hid the products that allowed us to make the PIP gel,” Mas told police, according to notes in the case file, “because I knew they weren’t regulation.” In his second police interview, Mas said he had given “the order to hide the truth from TUV” since 1993.

TUV sued PIP in February 2011, saying PIP had tarnished its reputation by using TUV’s name to market sub-standard products and that it had been systematically misled.

A HELPFUL LOOPHOLE

There were other gaps in the regulations that helped PIP keep its products on the market for so long. The system does not require on-site, unannounced checks of the implants’ contents. Nor does it require that the chemical composition of the implants, once approved, be re-tested.

A TUV spokesman said it would only have made an unannounced visit for checks if there were very serious indications that something was amiss. There have been no cases of unannounced checks in Germany in the past 40 years, he added.

Moreover, TUV’s yearly audits are essentially audits of overall processes; they do not perform on-site lab tests. The German company believes PIP deliberately deceived it.

AFSSAPS said it tested the insides of PIP’s implants in 2001 to make sure they were what PIP said they were when silicone breast implants were allowed back onto the French market.

After 2001, however, that job went to two independent French laboratories: LEMI, Laboratoire d’Evaluation des Materiels Implantables and LNE, Laboratoire National de Metrologie et d’Essais. Mas told police the laboratories performed tests in 2002 and 2008.

AFSSAPS’ deputy director general, Francois Hebert, told Reuters these tests were likely ordered by PIP following requests from surgeons, who may have sent back defective implants and asked for further evaluation.

LNE said its tests were mechanical – how likely PIP’s implants were to resist pressure, for instance – but declined to provide further information. LEMI said its tests related to toxicity, but also declined to provide further information.

The first random test by AFSSAPS would not come until mid-2010 by which time PIP was under investigation by police. That was when AFSSAPS issued a report which said, “this one does not reach the degree of quality of a silicone gel intended for breast implants.”

This week, France’s health department and AFSSAPS submitted a report to the country’s health minister acknowledging gaps in the French and European regulatory system. The report cited the lack of unannounced visits and on-site testing of implants but said that PIP’s alleged fraud was so sophisticated that “it’s not evident that an inspection, even an unannounced one, could have been effective.”

NO QUESTIONS ASKED?

The raw silicone materials for the PIP-formula gel included different products: Silopren – which was kept in the containers that had been spotted by inspectors – and Baysilone. PIP bought these silicone oils from a German distributor, Brenntag. It turned to a French distributor, Gaches Chimie, for a third oil, Rhodorsil 47V1000.

Brenntag confirmed it sold silicone oils to PIP from 2001 to 2010, but said it stopped when it was made aware PIP was under investigation. A Brenntag spokesman, Hubertus Spethmann, said that as far as Brenntag knew, PIP was a diversified supplier whose products included wound dressing pads and other padding products that could be filled with silicones such as the oils it produced. Brenntag would not comment on the orders PIP made or any payment problems with the French company.

Reuters could not independently confirm that these items were sold by PIP.

Representatives from Brenntag periodically asked to visit PIP’s headquarters, according to one ex-PIP employee, a request that caused much worry within PIP. Brenntag would not comment on the visits.

On at least two occasions, Brenntag sales representatives paid a visit, but were welcomed by Mas in his office and did not visit the production labs, the former worker said this month.

“Mas would tell them we used the silicone oil for creams, certainly not breast implants,” said the ex-worker. “We were very uncomfortable and let Mas do all the talking.”

Gaches Chimie also confirmed it occasionally sold its silicone oil to PIP from the early 2000s until 2009, when the orders stopped. CEO Pierre Gaches said he did not believe his company was PIP’s main supplier and never had concerns about the ultimate use of the oil, because it is used in many industrial applications.

NEW BMWS

Even as PIP used unapproved materials for its silicone implants, its innovative saline products were running into problems in the United States. Lawsuits from hundreds of patients alleged they deflated, sometimes within months of surgery. The FDA was never to approve PIP’s silicone products, instead posting a warning about the firm’s practices on its website.

Mas made a reverse takeover to try to open PIP to U.S. capital and prepare the way for a re-launch.

In 2003, his Luxembourg holding company Milo Finance bought a majority stake in U.S.-listed Heritage Worldwide, and handed to Heritage the control of PIP. In its first annual filing with the U.S. Securities and Exchange Commission after the merger, Heritage disclosed that for the financial year ended June 23, 2003, PIP had a loss of $693,336. That loss grew to $5.6 million in 2004.

PIP also turned to markets where regulation was not as stringent. It found distributors to open sales in 10 new countries “in which no regulatory problems were anticipated,” Heritage said in its 2003 annual report. Exports were less profitable – foreign sales fetched about a third of the French price – but there was volume in South America, which soon became PIP’s top market with two-thirds of sales, driven by Venezuela and Colombia.

In 2005 and 2006, PIP showed a profit. One former employee said these were the “glory days” for the company, which employed about 120 workers. Operating margins reached 20 percent, the sort of level an early cellphone maker could expect. “We’d see a smile on the face of Mr. Couty,” said a former manager. One of those years, the company bought new BMWs for Couty and Mas, Couty told police. He did not respond to requests for an interview.

Mas, now at France’s retirement age of 65, took on a chairman’s “supervisory and advice-giving” role in 2004, for which he received 360,000 euros per year, a five-fold rise over his 2003 salary.

Finance chief Couty became CEO, but PIP’s liquidator, Xavier Huertas, wrote in a March 2010 report that Mas continued to control production, R&D and sales, and “in fact, to lead the company at the side of Mr. Couty.”

However, crisis was around the corner. Litigation and the financial shocks of 2008 were to send Mas back into PIP’s labs, to try to improve on his “perfect” gel formula.

FRICTION MOUNTS

Mas was never trained as a scientist. He was a tinkerer, an experimenter who relied on his gut. But even he was to realise that PIP gel had a problem: it leaked too much silicone oil.

Of seven former PIP staff interviewed by Reuters, only two said they had no idea that the company was using a homemade gel. Three others suggested they kept quiet because they were worried about their jobs.

After 2005, PIP staff became more vocal. That year, the heads of production, quality control and research and development together asked Mas to fill all PIP’s implants with NuSil, Hannelore Font, the company’s quality control director, told police. Mas replied this would be “economically impossible”. Font did not return calls requesting an interview.

For 2008, PIP set aside 1.4 million euros to cover potential lawsuits, according to liquidation documents. It had underestimated. A British court ordered the company to pay 1.6 million euros to plaintiffs who alleged the envelopes covering PIP’s implants were not strong enough and leaked gel. U.S. litigation cost another 160,000 euros.

“All this litigation weakened the health of the company,” said Haddad, the attorney for PIP and Mas.

Complaints rose, and PIP’s customers paid more slowly. The liquidator noted that PIP’s export clients on average took nearly nine months to settle.

Suppliers balked, too. NuSil held up a shipment destined for PIP due to non-payment, PIP’s purchasing manager, Nadine Carrodano, told police. Couty wrote to Mas describing what he called his “fears for the future.”

By June 30, 2009, PIP’s debts reached 8.5 million euros. “In every area the company was crumbling,” Carrodano told police. She declined to comment.

“FINGER IN THE GEL”

In 2008, PIP invested 300,000 euros on a new machine to make the implants’ shells, hoping more uniformity would cut leakage, according to Couty.

Brinon, PIP’s technical director, said Mas came to him in early 2008 and told him to start developing a new gel, PIP 2. Brinon refused, and the task went instead to another worker who had never worked on implants before coming to PIP. The goal, he said, was to create a gel that would not leak so much oil. This was crucial: silicone gel that seeps out may cause irritation and inflammation in women’s bodies.

That worker told Reuters that Mas relied on trial and error, adding a bit of this and a bit of that in the lab: “He didn’t do scientific tests,” the former worker said. “He’d look and say, ‘that’s good, that’s bad.’”

To judge whether more or less oil was seeping out of the gel, the worker said, “you would look and then put your finger in the gel and you’d see if there was oil or not on your finger.”

Finally, midway through 2008, PIP 2 was ready.

Brinon was sceptical. His own mother, who had once had cancer, had a PIP implant and he was worried, he told police. He began doing his own tests on PIP gel and NuSil. He told police that PIP 1 gel excreted more oil than PIP 2, and much more than NuSil, which leaked oil in “infinitessimal amounts.”

A FINAL THUMBS-UP

Mas threw himself into export sales. His passport, a copy of which is included in police documents, shows visits to Panama, Venezuela, Colombia, Brazil, Uruguay, Ecuador, China, Singapore and the Philippines in 2008 and 2009.

Back at home, staff morale was low.

On May 4, 2009, a commerce court in the city of Toulon ordered PIP into the French equivalent of Chapter 11 proceedings.

About a dozen employees were laid off, month-to-month workers’ contracts were cut and evening shifts scaled back, according to liquidation documents.

Font, the quality-control staffer, told police she delivered an ultimatum to Mas at a meeting with other managers, saying she would no longer sign off on implants ready to be shipped. Instead, Couty took that on.

TUV performed an audit in early 2010. Purchasing manager Carrodano told police she was “close to tears” after TUV gave PIP the thumbs-up. Font got a doctor to sign a medical release to keep her away from work. Unpaid suppliers stopped sending raw materials; production ground to a halt.

“FRAGILE PEOPLE”

On March 16, 2010, AFSSAPS officials came calling, a visit that had been arranged five days in advance. AFSSAPS had recently received letters from a Marseille surgeon signalling his concerns with PIP rupture rates. The regulator also received in the mail photos sent anonymously of empty containers of non-approved raw materials at PIP’s plant.

On the first day of their visit, inspectors noticed nothing abnormal. The following morning, without telling PIP, they visited PIP’s production facility. It was then they spotted the empty containers labeled “Silop,” for Silopren. The lead inspector estimated they had contained nearly 9 tonnes of the liquid silicone.

Days later, when police visited the site, Mas slipped out quickly. When French police finally managed to question him in November, they asked why he had left in such a hurry. According to a police transcript of the interview, he said he was no longer in charge of the company – he had handed the reins to his finance director years back. “I thought it wasn’t me you were coming to see…”

Within two weeks of the regulators’ visit, PIP was shut down and AFSSAPS pulled its implants from the market. Some 29,000 products were seized. Laid-off staff burned tyres and hurled discarded implants into the car park.

Mas went abroad again. Costa Rica, Nicaragua, Columbia, Spain and Venezuela are among visits his passport records in 2010. In Costa Rica, he was pulled over and charged with drunk driving.

On September 27, 2010, Mas transferred his ownership of a real estate holding company to his partner Lucciardi and their son, according to Luxembourg filing documents. That company holds the title to a four-bedroom villa with a pool not far from PIP’s headquarters.

It was here police arrested Mas in January. The home, according to estate agents, is currently listed for sale at about 1.6 million euros.

In their questioning of Mas in October 2011, he told police that over the years, 75 percent of PIP’s implants were filled with his homemade formula. The French regulator says there are so far 1,262 cases of the devices rupturing in France. Health experts say no concrete link has been shown between PIP implants and breast cancer, but the French government has advised women to have their PIP implants removed.

Mas, who is out on bail, was asked by police what he thought of the women who issued complaints about the failed devices. “It’s about fragile people, or people who are doing it for the money,” he said, according to the interview transcript.

(For pdf version: link.reuters.com/naj46s)

(Alexandria Sage reported from Paris, Natalie Huet from La-Seyne-sur-Mer and Jean-Francois Rosnoblet from Marseille; additional reporting by Marc Joanny in La-Seyne-sur-Mer, Elena Berton in Paris, and Ludwig Burger and Maria Sheahan in Frankfurt; writing by Alexandria Sage; Editing by Sara Ledwith and Simon Robinson)

(Created by Simon Robinson)

The factory was the headquarters of Poly Implant Prothese (PIP), a leading international maker of breast implants founded by French entrepreneur Jean-Claude Mas. The inspectors found something odd: six discarded plastic containers of Silopren, a liquid silicone designed for industrial, not medical use, lined up along the outside wall of the production site.

A week later, gendarmes descended on the plant. Mas skipped out just ahead of them, eluding interrogation for nearly eight months, but his game was up. In the nearly two years since, the cheap silicone used in PIP’s fake breasts has continued to leach into women’s bodies. In France, 1,262 of the roughly 300,000 breast implants the company sold worldwide have split open in the past two years. PIP has been closed down, Mas has been arrested and put under investigation for alleged bodily harm, and French and European safety regulators have been thrust into an uncomfortable spotlight.

Mas, 72, a grocer’s son from the south of France, had no scientific training. Yet for the first decade of this century he was able to manufacture and sell faulty breast implants on international markets that he and some of his employees knew to be substandard, according to testimony given to French police and seen by Reuters.

The history of breast implants is littered with flawed devices, a colourful cast of intertwined players and billion-dollar lawsuits. Reuters reviewed hundreds of pages of police investigation transcripts and financial documents, and interviewed former PIP employees, the company’s suppliers, customers and health experts, to piece together this latest chapter in that history.

It is a tale of a haphazardly run and cash-strapped company that allegedly took desperate and sometimes deceptive steps to shave costs and hide the true ingredients of its devices. PIP’s efforts were made easier by a European regulatory regime that had been essentially outsourced to the very companies that are meant to be regulated.

Among the new details to emerge: PIP was able to save an estimated 1.2 million euros (1.0 million pounds) in one year by using the industrial-grade silicone in its implants, according to figures cited by police investigators. And it relied on crude, unscientific tests of product quality, such as judging silicone gel by sticking a finger in it, according to one former worker. Some 75 percent of its implants used the non-approved, cheaper gel, Mas told police.

“Maybe it’s shameful, but there you go,” Yves Haddad, a lawyer who represents both Mas and his now-defunct company, told Reuters at the end of December. “We live in a capitalist world.”

Mas, who declined to comment for this story, has said his products are harmless. After the health ministry advised Frenchwomen to have the devices removed, he told French radio network RTL last month that the decision was “criminal” and the health minister “needs to be committed.”

A CAREER IN SALES

Jean-Claude Florent Mas, born in Tarbes, near the Spanish border, was a salesman by temperament. He sold everything from life insurance to wine and dental equipment. He entered health care in the mid-1960s, working for various labs, including one that was bought by Bristol-Myers in the 1970s, where he stayed until 1980 as a salesman in the south of France. Mas’ attorney, Haddad, says his client was one of the firm’s top salesmen, although Bristol-Myers could not confirm that or say why he left.

It was after Bristol-Myers that Mas got involved in breast implants. He began working with a French plastic surgeon, Henri Arion, who had made France’s first breast implant in 1965, and was now selling saline implants under the name Simaplast.

It wasn’t a great start. Simaplast’s implants eventually were found to be prone to rupture, according to a 1999 study by U.S. non-profit Institute of Medicine. Simaplast morphed into a company named MAP – the precursor to PIP – where Mas said he performed every job from production to sweeping the floors. The small group of employees included a woman, Dominique Lucciardi, who would become Mas’ companion and mother of his two children. They would take turns filling the prostheses, he told police.

In 1991, aged 52, Mas launched PIP, a limited liability company and chose as its headquarters the site of the old Simaplast factory. In preparation, he had applied for a patent to sell implants containing silicone covered in polyurethane foam, he told police.

As he launched PIP, a breast implant scandal involving Dow Corning was sweeping across the United States. The American firm was found to have knowingly concealed safety concerns about its implants, and in 1992, the U.S. Food and Drug Administration called for a moratorium on the devices. Four years into PIP’s life, in 1995, France also banned silicone in breast implants, a ban that ended in 2001.

Mas found that by innovating, he could still bring products to market. He switched to implants filled with saline solution and launched a pre-filled version; other brands needed to be filled while the patient was on the operating table. PIP’s new product saved time, and surgeons liked it. PIP moved into the huge U.S. market in 1996, and soon the United States made up 40 percent of its revenue, according to company records.

AN ASYMMETRIC APPROACH

Opportunities for PIP grew on its home turf in 2001, when France lifted its ban on silicone implants, and the United States slowly began to approve more versions containing silicone gel, for which Mas already had a formula. “When I started PIP I brought this formula that I had kept,” he told police. “Why change it?”

Regulators had never examined nor approved that filler, but Mas insisted to his staff that it was perfectly safe, his ex-employees told Reuters.

Building on his innovations in saline implants, in 2002 Mas brought a new twist to silicone by launching an asymmetrical product that became popular with surgeons and patients, because it gave a more natural look than the “classic” style of implant, which resembled a perfectly round orb.

PIP’s approach to filling these implants was novel. On paper, the company said it used NuSil, a silicone blend made by a California company of the same name, which can be used in medical applications, including implantable devices. NuSil was founded by PIP’s former U.S. distributor, Donald McGhan, who is now in prison in Texas for an unrelated fraud conviction. The company has declined any comment on the PIP affair.

But in reality, PIP was mostly using Mas’ own non-approved PIP gel, which looked and felt exactly like NuSil, but cost a seventh of the price.

A litre of NuSil cost about 35 euros, versus 5 euros for PIP’s version, Thierry Brinon, PIP’s former technology head in charge of research and development, told police. Each implant on average used 330 cubic centimetres of gel. That meant it cost 11.55 euros to fill an implant with NuSil and a mere 1.65 euros to use PIP’s gel, a difference of 9.90 euros on each implant produced.

Claude Couty, the former chief financial officer of PIP, told police it cost an average total of 38 to 42 euros to manufacture an implant filled with PIP gel, versus 52 for an implant filled with NuSil. Investigators in the legal case file estimated that in one year alone, 2009, using PIP gel instead of NuSil saved the company nearly 1.2 million euros.

PIP sold implants to French surgeons for about 300 euros a piece. Abroad, the asking price was about 100 euros, according to former PIP staff and surgeons.

“This formula is perfect,” Mas told police. “It’s better than the formula for making NuSil.”

DECEIVING INSPECTORS

But because NuSil was a known quantity and his gel recipe was not, Mas concealed the implants’ ingredients from the regulator. Flaws in Europe’s regulatory system gave him a helping hand.

France has a government regulator, the Agence Francaise de Securite Sanitaire des Produits de Sante, or AFSSAPS, which has the power to remove products from the market but does not certify them. But the agency that certified PIP’s implants was actually a private company, based in Germany. TUV Rheinland first approved PIP’s saline implants in 1997. Its officials paid annual visits to the factory in La-Seyne-sur-Mer and announced them 10 days in advance, in accordance with European guidelines.

That gave PIP plenty of time to hide the truth. Ahead of TUV visits, workers would clear away evidence of the cheaper silicones PIP was using and put together a doctored version of documents that included no references to the use of unapproved silicone, Mas and ex-managers told police. All internal communications related to TUV’s visits were oral, said one former worker.

“Since 1997, we automatically hid the products that allowed us to make the PIP gel,” Mas told police, according to notes in the case file, “because I knew they weren’t regulation.” In his second police interview, Mas said he had given “the order to hide the truth from TUV” since 1993.

TUV sued PIP in February 2011, saying PIP had tarnished its reputation by using TUV’s name to market sub-standard products and that it had been systematically misled.

A HELPFUL LOOPHOLE

There were other gaps in the regulations that helped PIP keep its products on the market for so long. The system does not require on-site, unannounced checks of the implants’ contents. Nor does it require that the chemical composition of the implants, once approved, be re-tested.

A TUV spokesman said it would only have made an unannounced visit for checks if there were very serious indications that something was amiss. There have been no cases of unannounced checks in Germany in the past 40 years, he added.

Moreover, TUV’s yearly audits are essentially audits of overall processes; they do not perform on-site lab tests. The German company believes PIP deliberately deceived it.

AFSSAPS said it tested the insides of PIP’s implants in 2001 to make sure they were what PIP said they were when silicone breast implants were allowed back onto the French market.

After 2001, however, that job went to two independent French laboratories: LEMI, Laboratoire d’Evaluation des Materiels Implantables and LNE, Laboratoire National de Metrologie et d’Essais. Mas told police the laboratories performed tests in 2002 and 2008.

AFSSAPS’ deputy director general, Francois Hebert, told Reuters these tests were likely ordered by PIP following requests from surgeons, who may have sent back defective implants and asked for further evaluation.

LNE said its tests were mechanical – how likely PIP’s implants were to resist pressure, for instance – but declined to provide further information. LEMI said its tests related to toxicity, but also declined to provide further information.

The first random test by AFSSAPS would not come until mid-2010 by which time PIP was under investigation by police. That was when AFSSAPS issued a report which said, “this one does not reach the degree of quality of a silicone gel intended for breast implants.”

This week, France’s health department and AFSSAPS submitted a report to the country’s health minister acknowledging gaps in the French and European regulatory system. The report cited the lack of unannounced visits and on-site testing of implants but said that PIP’s alleged fraud was so sophisticated that “it’s not evident that an inspection, even an unannounced one, could have been effective.”

NO QUESTIONS ASKED?

The raw silicone materials for the PIP-formula gel included different products: Silopren – which was kept in the containers that had been spotted by inspectors – and Baysilone. PIP bought these silicone oils from a German distributor, Brenntag. It turned to a French distributor, Gaches Chimie, for a third oil, Rhodorsil 47V1000.

Brenntag confirmed it sold silicone oils to PIP from 2001 to 2010, but said it stopped when it was made aware PIP was under investigation. A Brenntag spokesman, Hubertus Spethmann, said that as far as Brenntag knew, PIP was a diversified supplier whose products included wound dressing pads and other padding products that could be filled with silicones such as the oils it produced. Brenntag would not comment on the orders PIP made or any payment problems with the French company.

Reuters could not independently confirm that these items were sold by PIP.

Representatives from Brenntag periodically asked to visit PIP’s headquarters, according to one ex-PIP employee, a request that caused much worry within PIP. Brenntag would not comment on the visits.

On at least two occasions, Brenntag sales representatives paid a visit, but were welcomed by Mas in his office and did not visit the production labs, the former worker said this month.

“Mas would tell them we used the silicone oil for creams, certainly not breast implants,” said the ex-worker. “We were very uncomfortable and let Mas do all the talking.”

Gaches Chimie also confirmed it occasionally sold its silicone oil to PIP from the early 2000s until 2009, when the orders stopped. CEO Pierre Gaches said he did not believe his company was PIP’s main supplier and never had concerns about the ultimate use of the oil, because it is used in many industrial applications.

NEW BMWS

Even as PIP used unapproved materials for its silicone implants, its innovative saline products were running into problems in the United States. Lawsuits from hundreds of patients alleged they deflated, sometimes within months of surgery. The FDA was never to approve PIP’s silicone products, instead posting a warning about the firm’s practices on its website.

Mas made a reverse takeover to try to open PIP to U.S. capital and prepare the way for a re-launch.

In 2003, his Luxembourg holding company Milo Finance bought a majority stake in U.S.-listed Heritage Worldwide, and handed to Heritage the control of PIP. In its first annual filing with the U.S. Securities and Exchange Commission after the merger, Heritage disclosed that for the financial year ended June 23, 2003, PIP had a loss of $693,336. That loss grew to $5.6 million in 2004.

PIP also turned to markets where regulation was not as stringent. It found distributors to open sales in 10 new countries “in which no regulatory problems were anticipated,” Heritage said in its 2003 annual report. Exports were less profitable – foreign sales fetched about a third of the French price – but there was volume in South America, which soon became PIP’s top market with two-thirds of sales, driven by Venezuela and Colombia.

In 2005 and 2006, PIP showed a profit. One former employee said these were the “glory days” for the company, which employed about 120 workers. Operating margins reached 20 percent, the sort of level an early cellphone maker could expect. “We’d see a smile on the face of Mr. Couty,” said a former manager. One of those years, the company bought new BMWs for Couty and Mas, Couty told police. He did not respond to requests for an interview.

Mas, now at France’s retirement age of 65, took on a chairman’s “supervisory and advice-giving” role in 2004, for which he received 360,000 euros per year, a five-fold rise over his 2003 salary.

Finance chief Couty became CEO, but PIP’s liquidator, Xavier Huertas, wrote in a March 2010 report that Mas continued to control production, R&D and sales, and “in fact, to lead the company at the side of Mr. Couty.”

However, crisis was around the corner. Litigation and the financial shocks of 2008 were to send Mas back into PIP’s labs, to try to improve on his “perfect” gel formula.

FRICTION MOUNTS

Mas was never trained as a scientist. He was a tinkerer, an experimenter who relied on his gut. But even he was to realise that PIP gel had a problem: it leaked too much silicone oil.

Of seven former PIP staff interviewed by Reuters, only two said they had no idea that the company was using a homemade gel. Three others suggested they kept quiet because they were worried about their jobs.

After 2005, PIP staff became more vocal. That year, the heads of production, quality control and research and development together asked Mas to fill all PIP’s implants with NuSil, Hannelore Font, the company’s quality control director, told police. Mas replied this would be “economically impossible”. Font did not return calls requesting an interview.

For 2008, PIP set aside 1.4 million euros to cover potential lawsuits, according to liquidation documents. It had underestimated. A British court ordered the company to pay 1.6 million euros to plaintiffs who alleged the envelopes covering PIP’s implants were not strong enough and leaked gel. U.S. litigation cost another 160,000 euros.

“All this litigation weakened the health of the company,” said Haddad, the attorney for PIP and Mas.

Complaints rose, and PIP’s customers paid more slowly. The liquidator noted that PIP’s export clients on average took nearly nine months to settle.

Suppliers balked, too. NuSil held up a shipment destined for PIP due to non-payment, PIP’s purchasing manager, Nadine Carrodano, told police. Couty wrote to Mas describing what he called his “fears for the future.”

By June 30, 2009, PIP’s debts reached 8.5 million euros. “In every area the company was crumbling,” Carrodano told police. She declined to comment.

“FINGER IN THE GEL”

In 2008, PIP invested 300,000 euros on a new machine to make the implants’ shells, hoping more uniformity would cut leakage, according to Couty.

Brinon, PIP’s technical director, said Mas came to him in early 2008 and told him to start developing a new gel, PIP 2. Brinon refused, and the task went instead to another worker who had never worked on implants before coming to PIP. The goal, he said, was to create a gel that would not leak so much oil. This was crucial: silicone gel that seeps out may cause irritation and inflammation in women’s bodies.

That worker told Reuters that Mas relied on trial and error, adding a bit of this and a bit of that in the lab: “He didn’t do scientific tests,” the former worker said. “He’d look and say, ‘that’s good, that’s bad.’”

To judge whether more or less oil was seeping out of the gel, the worker said, “you would look and then put your finger in the gel and you’d see if there was oil or not on your finger.”

Finally, midway through 2008, PIP 2 was ready.

Brinon was sceptical. His own mother, who had once had cancer, had a PIP implant and he was worried, he told police. He began doing his own tests on PIP gel and NuSil. He told police that PIP 1 gel excreted more oil than PIP 2, and much more than NuSil, which leaked oil in “infinitessimal amounts.”

A FINAL THUMBS-UP

Mas threw himself into export sales. His passport, a copy of which is included in police documents, shows visits to Panama, Venezuela, Colombia, Brazil, Uruguay, Ecuador, China, Singapore and the Philippines in 2008 and 2009.

Back at home, staff morale was low.

On May 4, 2009, a commerce court in the city of Toulon ordered PIP into the French equivalent of Chapter 11 proceedings.

About a dozen employees were laid off, month-to-month workers’ contracts were cut and evening shifts scaled back, according to liquidation documents.

Font, the quality-control staffer, told police she delivered an ultimatum to Mas at a meeting with other managers, saying she would no longer sign off on implants ready to be shipped. Instead, Couty took that on.

TUV performed an audit in early 2010. Purchasing manager Carrodano told police she was “close to tears” after TUV gave PIP the thumbs-up. Font got a doctor to sign a medical release to keep her away from work. Unpaid suppliers stopped sending raw materials; production ground to a halt.

“FRAGILE PEOPLE”

On March 16, 2010, AFSSAPS officials came calling, a visit that had been arranged five days in advance. AFSSAPS had recently received letters from a Marseille surgeon signalling his concerns with PIP rupture rates. The regulator also received in the mail photos sent anonymously of empty containers of non-approved raw materials at PIP’s plant.

On the first day of their visit, inspectors noticed nothing abnormal. The following morning, without telling PIP, they visited PIP’s production facility. It was then they spotted the empty containers labelled “Silop,” for Silopren. The lead inspector estimated they had contained nearly 9 tonnes of the liquid silicone.

Days later, when police visited the site, Mas slipped out quickly. When French police finally managed to question him in November, they asked why he had left in such a hurry. According to a police transcript of the interview, he said he was no longer in charge of the company – he had handed the reins to his finance director years back. “I thought it wasn’t me you were coming to see…”

Within two weeks of the regulators’ visit, PIP was shut down and AFSSAPS pulled its implants from the market. Some 29,000 products were seized. Laid-off staff burned tyres and hurled discarded implants into the car park.

Mas went abroad again. Costa Rica, Nicaragua, Columbia, Spain and Venezuela are among visits his passport records in 2010. In Costa Rica, he was pulled over and charged with drunk driving.

On September 27, 2010, Mas transferred his ownership of a real estate holding company to his partner Lucciardi and their son, according to Luxembourg filing documents. That company holds the title to a four-bedroom villa with a pool not far from PIP’s headquarters.

It was here police arrested Mas in January. The home, according to estate agents, is currently listed for sale at about 1.6 million euros.

In their questioning of Mas in October 2011, he told police that over the years, 75 percent of PIP’s implants were filled with his homemade formula. The French regulator says there are so far 1,262 cases of the devices rupturing in France. Health experts say no concrete link has been shown between PIP implants and breast cancer, but the French government has advised women to have their PIP implants removed.

Mas, who is out on bail, was asked by police what he thought of the women who issued complaints about the failed devices. “It’s about fragile people, or people who are doing it for the money,” he said, according to the interview transcript.

(Alexandria Sage reported from Paris, Natalie Huet from La-Seyne-sur-Mer and Jean-Francois Rosnoblet from Marseille; additional reporting by Marc Joanny in La-Seyne-sur-Mer, Elena Berton in Paris, and Ludwig Burger and Maria Sheahan in Frankfurt; writing by Alexandria Sage; Editing by Sara Ledwith and Simon Robinson)

(Created by Simon Robinson)

The factory was the headquarters of Poly Implant Prothese (PIP), a leading international maker of breast implants founded by French entrepreneur Jean-Claude Mas. The inspectors found something odd: six discarded plastic containers of Silopren, a liquid silicone designed for industrial, not medical use, lined up along the outside wall of the production site.

A week later, gendarmes descended on the plant. Mas skipped out just ahead of them, eluding interrogation for nearly eight months, but his game was up. In the nearly two years since, the cheap silicone used in PIP’s fake breasts has continued to leach into women’s bodies. In France, 1,262 of the roughly 300,000 breast implants the company sold worldwide have split open in the past two years. PIP has been closed down, Mas has been arrested and put under investigation for alleged bodily harm, and French and European safety regulators have been thrust into an uncomfortable spotlight.

Mas, 72, a grocer’s son from the south of France, had no scientific training. Yet for the first decade of this century he was able to manufacture and sell faulty breast implants on international markets that he and some of his employees knew to be substandard, according to testimony given to French police and seen by Reuters.

The history of breast implants is littered with flawed devices, a colorful cast of intertwined players and billion-dollar lawsuits. Reuters reviewed hundreds of pages of police investigation transcripts and financial documents, and interviewed former PIP employees, the company’s suppliers, customers and health experts, to piece together this latest chapter in that history.

It is a tale of a haphazardly run and cash-strapped company that allegedly took desperate and sometimes deceptive steps to shave costs and hide the true ingredients of its devices. PIP’s efforts were made easier by a European regulatory regime that had been essentially outsourced to the very companies that are meant to be regulated.

Among the new details to emerge: PIP was able to save an estimated 1.2 million euros ($1.6 million) in one year by using the industrial-grade silicone in its implants, according to figures cited by police investigators. And it relied on crude, unscientific tests of product quality, such as judging silicone gel by sticking a finger in it, according to one former worker. Some 75 percent of its implants used the non-approved, cheaper gel, Mas told police.

“Maybe it’s shameful, but there you go,” Yves Haddad, a lawyer who represents both Mas and his now-defunct company, told Reuters at the end of December. “We live in a capitalist world.”

Mas, who declined to comment for this story, has said his products are harmless. After the health ministry advised Frenchwomen to have the devices removed, he told French radio network RTL last month that the decision was “criminal” and the health minister “needs to be committed.”

A CAREER IN SALES

Jean-Claude Florent Mas, born in Tarbes, near the Spanish border, was a salesman by temperament. He sold everything from life insurance to wine and dental equipment. He entered health care in the mid-1960s, working for various labs, including one that was bought by Bristol-Myers in the 1970s, where he stayed until 1980 as a salesman in the south of France. Mas’ attorney, Haddad, says his client was one of the firm’s top salesmen, although Bristol-Myers could not confirm that or say why he left.

It was after Bristol-Myers that Mas got involved in breast implants. He began working with a French plastic surgeon, Henri Arion, who had made France’s first breast implant in 1965, and was now selling saline implants under the name Simaplast.

It wasn’t a great start. Simaplast’s implants eventually were found to be prone to rupture, according to a 1999 study by U.S. non-profit Institute of Medicine. Simaplast morphed into a company named MAP – the precursor to PIP – where Mas said he performed every job from production to sweeping the floors. The small group of employees included a woman, Dominique Lucciardi, who would become Mas’ companion and mother of his two children. They would take turns filling the prostheses, he told police.

In 1991, aged 52, Mas launched PIP, a limited liability company and chose as its headquarters the site of the old Simaplast factory. In preparation, he had applied for a patent to sell implants containing silicone covered in polyurethane foam, he told police.

As he launched PIP, a breast implant scandal involving Dow Corning was sweeping across the United States. The American firm was found to have knowingly concealed safety concerns about its implants, and in 1992, the U.S. Food and Drug Administration called for a moratorium on the devices. Four years into PIP’s life, in 1995, France also banned silicone in breast implants, a ban that ended in 2001.

Mas found that by innovating, he could still bring products to market. He switched to implants filled with saline solution and launched a pre-filled version; other brands needed to be filled while the patient was on the operating table. PIP’s new product saved time, and surgeons liked it. PIP moved into the huge U.S. market in 1996, and soon the United States made up 40 percent of its revenue, according to company records.

AN ASYMMETRIC APPROACH

Opportunities for PIP grew on its home turf in 2001, when France lifted its ban on silicone implants, and the United States slowly began to approve more versions containing silicone gel, for which Mas already had a formula. “When I started PIP I brought this formula that I had kept,” he told police. “Why change it?”

Regulators had never examined nor approved that filler, but Mas insisted to his staff that it was perfectly safe, his ex-employees told Reuters.

Building on his innovations in saline implants, in 2002 Mas brought a new twist to silicone by launching an asymmetrical product that became popular with surgeons and patients, because it gave a more natural look than the “classic” style of implant, which resembled a perfectly round orb.

PIP’s approach to filling these implants was novel. On paper, the company said it used NuSil, a silicone blend made by a California company of the same name, which can be used in medical applications, including implantable devices. NuSil was founded by PIP’s former U.S. distributor, Donald McGhan, who is now in prison in Texas for an unrelated fraud conviction. The company has declined any comment on the PIP affair.

But in reality, PIP was mostly using Mas’ own non-approved PIP gel, which looked and felt exactly like NuSil, but cost a seventh of the price.

A liter of NuSil cost about 35 euros, versus 5 euros for PIP’s version, Thierry Brinon, PIP’s former technology head in charge of research and development, told police. Each implant on average used 330 cubic centimeters of gel. That meant it cost 11.55 euros to fill an implant with NuSil and a mere 1.65 euros to use PIP’s gel, a difference of 9.90 euros on each implant produced.

Claude Couty, the former chief financial officer of PIP, told police it cost an average total of 38 to 42 euros to manufacture an implant filled with PIP gel, versus 52 for an implant filled with NuSil. Investigators in the legal case file estimated that in one year alone, 2009, using PIP gel instead of NuSil saved the company nearly 1.2 million euros.

PIP sold implants to French surgeons for about 300 euros a piece. Abroad, the asking price was about 100 euros, according to former PIP staff and surgeons.

“This formula is perfect,” Mas told police. “It’s better than the formula for making NuSil.”

DECEIVING INSPECTORS

But because NuSil was a known quantity and his gel recipe was not, Mas concealed the implants’ ingredients from the regulator. Flaws in Europe’s regulatory system gave him a helping hand.

France has a government regulator, the Agence Francaise de Securite Sanitaire des Produits de Sante, or AFSSAPS, which has the power to remove products from the market but does not certify them. But the agency that certified PIP’s implants was actually a private company, based in Germany. TUV Rheinland first approved PIP’s saline implants in 1997. Its officials paid annual visits to the factory in La-Seyne-sur-Mer and announced them 10 days in advance, in accordance with European guidelines.

That gave PIP plenty of time to hide the truth. Ahead of TUV visits, workers would clear away evidence of the cheaper silicones PIP was using and put together a doctored version of documents that included no references to the use of unapproved silicone, Mas and ex-managers told police. All internal communications related to TUV’s visits were oral, said one former worker.

“Since 1997, we automatically hid the products that allowed us to make the PIP gel,” Mas told police, according to notes in the case file, “because I knew they weren’t regulation.” In his second police interview, Mas said he had given “the order to hide the truth from TUV” since 1993.

TUV sued PIP in February 2011, saying PIP had tarnished its reputation by using TUV’s name to market sub-standard products and that it had been systematically misled.

A HELPFUL LOOPHOLE

There were other gaps in the regulations that helped PIP keep its products on the market for so long. The system does not require on-site, unannounced checks of the implants’ contents. Nor does it require that the chemical composition of the implants, once approved, be re-tested.

A TUV spokesman said it would only have made an unannounced visit for checks if there were very serious indications that something was amiss. There have been no cases of unannounced checks in Germany in the past 40 years, he added.

Moreover, TUV’s yearly audits are essentially audits of overall processes; they do not perform on-site lab tests. The German company believes PIP deliberately deceived it.

AFSSAPS said it tested the insides of PIP’s implants in 2001 to make sure they were what PIP said they were when silicone breast implants were allowed back onto the French market.

After 2001, however, that job went to two independent French laboratories: LEMI, Laboratoire d’Evaluation des Materiels Implantables and LNE, Laboratoire National de Metrologie et d’Essais. Mas told police the laboratories performed tests in 2002 and 2008.

AFSSAPS’ deputy director general, Francois Hebert, told Reuters these tests were likely ordered by PIP following requests from surgeons, who may have sent back defective implants and asked for further evaluation.

LNE said its tests were mechanical – how likely PIP’s implants were to resist pressure, for instance – but declined to provide further information. LEMI said its tests related to toxicity, but also declined to provide further information.

The first random test by AFSSAPS would not come until mid-2010 by which time PIP was under investigation by police. That was when AFSSAPS issued a report which said, “this one does not reach the degree of quality of a silicone gel intended for breast implants.”

This week, France’s health department and AFSSAPS submitted a report to the country’s health minister acknowledging gaps in the French and European regulatory system. The report cited the lack of unannounced visits and on-site testing of implants but said that PIP’s alleged fraud was so sophisticated that “it’s not evident that an inspection, even an unannounced one, could have been effective.”

NO QUESTIONS ASKED?

The raw silicone materials for the PIP-formula gel included different products: Silopren – which was kept in the containers that had been spotted by inspectors – and Baysilone. PIP bought these silicone oils from a German distributor, Brenntag. It turned to a French distributor, Gaches Chimie, for a third oil, Rhodorsil 47V1000.

Brenntag confirmed it sold silicone oils to PIP from 2001 to 2010, but said it stopped when it was made aware PIP was under investigation. A Brenntag spokesman, Hubertus Spethmann, said that as far as Brenntag knew, PIP was a diversified supplier whose products included wound dressing pads and other padding products that could be filled with silicones such as the oils it produced. Brenntag would not comment on the orders PIP made or any payment problems with the French company.

Reuters could not independently confirm that these items were sold by PIP.

Representatives from Brenntag periodically asked to visit PIP’s headquarters, according to one ex-PIP employee, a request that caused much worry within PIP. Brenntag would not comment on the visits.

On at least two occasions, Brenntag sales representatives paid a visit, but were welcomed by Mas in his office and did not visit the production labs, the former worker said this month.

“Mas would tell them we used the silicone oil for creams, certainly not breast implants,” said the ex-worker. “We were very uncomfortable and let Mas do all the talking.”

Gaches Chimie also confirmed it occasionally sold its silicone oil to PIP from the early 2000s until 2009, when the orders stopped. CEO Pierre Gaches said he did not believe his company was PIP’s main supplier and never had concerns about the ultimate use of the oil, because it is used in many industrial applications.

NEW BMWS

Even as PIP used unapproved materials for its silicone implants, its innovative saline products were running into problems in the United States. Lawsuits from hundreds of patients alleged they deflated, sometimes within months of surgery. The FDA was never to approve PIP’s silicone products, instead posting a warning about the firm’s practices on its website.

Mas made a reverse takeover to try to open PIP to U.S. capital and prepare the way for a re-launch.

In 2003, his Luxembourg holding company Milo Finance bought a majority stake in U.S.-listed Heritage Worldwide, and handed to Heritage the control of PIP. In its first annual filing with the U.S. Securities and Exchange Commission after the merger, Heritage disclosed that for the financial year ended June 23, 2003, PIP had a loss of $693,336. That loss grew to $5.6 million in 2004.

PIP also turned to markets where regulation was not as stringent. It found distributors to open sales in 10 new countries “in which no regulatory problems were anticipated,” Heritage said in its 2003 annual report. Exports were less profitable – foreign sales fetched about a third of the French price – but there was volume in South America, which soon became PIP’s top market with two-thirds of sales, driven by Venezuela and Colombia.

In 2005 and 2006, PIP showed a profit. One former employee said these were the “glory days” for the company, which employed about 120 workers. Operating margins reached 20 percent, the sort of level an early cellphone maker could expect. “We’d see a smile on the face of Mr. Couty,” said a former manager. One of those years, the company bought new BMWs for Couty and Mas, Couty told police. He did not respond to requests for an interview.

Mas, now at France’s retirement age of 65, took on a chairman’s “supervisory and advice-giving” role in 2004, for which he received 360,000 euros per year, a five-fold rise over his 2003 salary.

Finance chief Couty became CEO, but PIP’s liquidator, Xavier Huertas, wrote in a March 2010 report that Mas continued to control production, R&D and sales, and “in fact, to lead the company at the side of Mr. Couty.”

However, crisis was around the corner. Litigation and the financial shocks of 2008 were to send Mas back into PIP’s labs, to try to improve on his “perfect” gel formula.

FRICTION MOUNTS

Mas was never trained as a scientist. He was a tinkerer, an experimenter who relied on his gut. But even he was to realize that PIP gel had a problem: it leaked too much silicone oil.

Of seven former PIP staff interviewed by Reuters, only two said they had no idea that the company was using a homemade gel. Three others suggested they kept quiet because they were worried about their jobs.

After 2005, PIP staff became more vocal. That year, the heads of production, quality control and research and development together asked Mas to fill all PIP’s implants with NuSil, Hannelore Font, the company’s quality control director, told police. Mas replied this would be “economically impossible”. Font did not return calls requesting an interview.

For 2008, PIP set aside 1.4 million euros to cover potential lawsuits, according to liquidation documents. It had underestimated. A British court ordered the company to pay 1.6 million euros to plaintiffs who alleged the envelopes covering PIP’s implants were not strong enough and leaked gel. U.S. litigation cost another 160,000 euros.

“All this litigation weakened the health of the company,” said Haddad, the attorney for PIP and Mas.

Complaints rose, and PIP’s customers paid more slowly. The liquidator noted that PIP’s export clients on average took nearly nine months to settle.

Suppliers balked, too. NuSil held up a shipment destined for PIP due to non-payment, PIP’s purchasing manager, Nadine Carrodano, told police. Couty wrote to Mas describing what he called his “fears for the future.”

By June 30, 2009, PIP’s debts reached 8.5 million euros. “In every area the company was crumbling,” Carrodano told police. She declined to comment.

“FINGER IN THE GEL”

In 2008, PIP invested 300,000 euros on a new machine to make the implants’ shells, hoping more uniformity would cut leakage, according to Couty.

Brinon, PIP’s technical director, said Mas came to him in early 2008 and told him to start developing a new gel, PIP 2. Brinon refused, and the task went instead to another worker who had never worked on implants before coming to PIP. The goal, he said, was to create a gel that would not leak so much oil. This was crucial: silicone gel that seeps out may cause irritation and inflammation in women’s bodies.

That worker told Reuters that Mas relied on trial and error, adding a bit of this and a bit of that in the lab: “He didn’t do scientific tests,” the former worker said. “He’d look and say, ‘that’s good, that’s bad.’”

To judge whether more or less oil was seeping out of the gel, the worker said, “you would look and then put your finger in the gel and you’d see if there was oil or not on your finger.”

Finally, midway through 2008, PIP 2 was ready.

Brinon was sceptical. His own mother, who had once had cancer, had a PIP implant and he was worried, he told police. He began doing his own tests on PIP gel and NuSil. He told police that PIP 1 gel excreted more oil than PIP 2, and much more than NuSil, which leaked oil in “infinitessimal amounts.”

A FINAL THUMBS-UP

Mas threw himself into export sales. His passport, a copy of which is included in police documents, shows visits to Panama, Venezuela, Colombia, Brazil, Uruguay, Ecuador, China, Singapore and the Philippines in 2008 and 2009.

Back at home, staff morale was low.

On May 4, 2009, a commerce court in the city of Toulon ordered PIP into the French equivalent of Chapter 11 proceedings.

About a dozen employees were laid off, month-to-month workers’ contracts were cut and evening shifts scaled back, according to liquidation documents.

Font, the quality-control staffer, told police she delivered an ultimatum to Mas at a meeting with other managers, saying she would no longer sign off on implants ready to be shipped. Instead, Couty took that on.

TUV performed an audit in early 2010. Purchasing manager Carrodano told police she was “close to tears” after TUV gave PIP the thumbs-up. Font got a doctor to sign a medical release to keep her away from work. Unpaid suppliers stopped sending raw materials; production ground to a halt.

“FRAGILE PEOPLE”

On March 16, 2010, AFSSAPS officials came calling, a visit that had been arranged five days in advance. AFSSAPS had recently received letters from a Marseille surgeon signaling his concerns with PIP rupture rates. The regulator also received in the mail photos sent anonymously of empty containers of non-approved raw materials at PIP’s plant.

On the first day of their visit, inspectors noticed nothing abnormal. The following morning, without telling PIP, they visited PIP’s production facility. It was then they spotted the empty containers labeled “Silop,” for Silopren. The lead inspector estimated they had contained nearly 9 tonnes of the liquid silicone.

Days later, when police visited the site, Mas slipped out quickly. When French police finally managed to question him in November, they asked why he had left in such a hurry. According to a police transcript of the interview, he said he was no longer in charge of the company – he had handed the reins to his finance director years back. “I thought it wasn’t me you were coming to see…”

Within two weeks of the regulators’ visit, PIP was shut down and AFSSAPS pulled its implants from the market. Some 29,000 products were seized. Laid-off staff burned tires and hurled discarded implants into the car park.

Mas went abroad again. Costa Rica, Nicaragua, Columbia, Spain and Venezuela are among visits his passport records in 2010. In Costa Rica, he was pulled over and charged with drunk driving.

On September 27, 2010, Mas transferred his ownership of a real estate holding company to his partner Lucciardi and their son, according to Luxembourg filing documents. That company holds the title to a four-bedroom villa with a pool not far from PIP’s headquarters.

It was here police arrested Mas in January. The home, according to estate agents, is currently listed for sale at about 1.6 million euros.

In their questioning of Mas in October 2011, he told police that over the years, 75 percent of PIP’s implants were filled with his homemade formula. The French regulator says there are so far 1,262 cases of the devices rupturing in France. Health experts say no concrete link has been shown between PIP implants and breast cancer, but the French government has advised women to have their PIP implants removed.

Mas, who is out on bail, was asked by police what he thought of the women who issued complaints about the failed devices. “It’s about fragile people, or people who are doing it for the money,” he said, according to the interview transcript.

(Alexandria Sage reported from Paris, Natalie Huet from La-Seyne-sur-Mer and Jean-Francois Rosnoblet from Marseille; additional reporting by Marc Joanny in La-Seyne-sur-Mer, Elena Berton in Paris, and Ludwig Burger and Maria Sheahan in Frankfurt; writing by Alexandria Sage; Editing by Sara Ledwith and Simon Robinson)

(Created by Simon Robinson)

(For pdf version: link.reuters.com/naj46s)

Sarkozy, who is running far behind Socialist challenger Francois Hollande in opinion polls for the election, said he would raise the VAT rate to 21.2 percent from 19.6 percent from October to fund a reduction in social charges on companies.

The move, which Sarkozy first alluded to in a New Year’s speech, is aimed at narrowing a competitiveness gap with Germany that is weighing on French growth, but it risks angering voters.

Among other measures, Sarkozy said he would set up an industrial investment bank in February with a billion euros in capital that will lend to small and medium-sized businesses struggling to obtain financing in today’s climate.

He also said companies with more than 250 employees would be obliged to take on interns to the level of 5 percent of total staff, as a way of helping reduce chronic youth unemployment.

Sarkozy said he had a duty as president to hold off announcing his re-election bid until as late as possible.

Yet his interview, broadcast live across eight TV channels, seemed timed to respond to a series of TV appearances and speeches last week by Hollande, who is campaigning at full throttle for the two-round election on April 22 and May 6.

“We have to protect employment, we have to defend it, value it,” said Sarkozy, who has thrown his focus onto growth and jobs since it became clear late last year that his deficit-cutting efforts could not save France from a credit rating downgrade.

“I am convinced this decision will save jobs and that it’s the only credible way to stop outsourcing,” he said of his so-called “Social VAT” plan to ease firms’ social contributions.

Sarkozy, who turned 57 on Saturday, said a financial transaction tax he is planning for August would set a tax of 0.1 percent on transactions in French securities.

He gave no detail on the tax, which France wants to be adopted across the European Union, but a government source later said it would target shares, not bonds, and could raise a billion euros annually.

Separately, Sarkozy announced a rise in taxes on individuals’ financial income such as interest and dividends.

UPS AND DOWNS

Sarkozy has worked hard in recent months to present a more austere and presidential demeanor following criticism of his informal and sometimes brash manner, and he stuck to a highly technical discourse on Sunday. He referred frequently to Germany as an economic model that France should be copying.

Setting the stage for what aides say will be an “honest” campaign that admits past mistakes yet seeks to show he is the safest pair of hands to steer France out of economic gloom, Sarkozy sounded a note of humility about his years in office.

“I accept the criticism,” he said, adding that there had been “ups and downs” and things he regretted.

Opinion polls show Sarkozy could lose a runoff against Hollande by 10 percentage points, and some in his UMP party believe he is suffering from his decision to leave launching his campaign until close to a March 16 deadline.

Hollande put in an able performance last week in a TV debate against Alain Juppe, Sarkozy’s foreign minister and one of the most talented politicians in his team, and he also unveiled a weighty and fiscally responsible economic plan.

In an attempt at one-upmanship, Sarkozy said France’s public deficit for 2011 could come in as low as 5.4 or 5.3 percent of gross domestic product, well below a target of 5.7 percent.

Yet illustrating the economic challenge ahead, the source said that the government will soon revise down its 1.0 percent forecast for 2012 growth.

Both Hollande and Sarkozy are seizing on the euro zone crisis and what many fear is a descent into recession in France as their key focus for the 2012 election.

While Hollande blames France’s woes on more than a decade of conservative leadership, Sarkozy is playing on his experience next to a man who has never been a government minister.

An Ifop poll published on Sunday showed, however, that many see Hollande as the best candidate to tackle debt reduction and unemployment, which is running at a more than 12-year high.

The poll found 46 percent of respondents trusted Hollande most to fight unemployment, versus 22 percent for Sarkozy, and 34 percent chose Hollande as the best to handle the public debt, versus 32 percent for Sarkozy.

Underlining a belief that Hollande could defeat Sarkozy, Angela Merkel’s Christian Democratic Union (CDU) party said on Saturday that the German Chancellor plans to actively back Sarkozy in his campaign by making joint appearances with him.

(Editing by Alison Williams)

“No, no, no,” sang the four male Afro-American acapella
singers who kicked off the show, using Winehouse’s husky battle
cry “Rehab” as a backdrop to 1950s and 60s-inspired looks.

Sporting pink, red, blonde and black beehives, the leggy
models with thick cat-eye eyeliner sported lots of lace,
sequins, peek-a-boo skin — and even cigarettes.

A shocking canary-yellow sequined blouson was paired with an
equally bright turquoise slim sequined skirt in a sexy look
worthy of 50s pin-up girl Betty Page.

Another seemed tailor-made for a gal with a hangover who
doesn’t want to get out of bed: a satin peignoir in a printed
marquetry fabric worn over a jewel-encrusted bustier.

Winehouse, who died in July from alcohol poisoning, was
known for her rich voice, songs that recalled 1960s girl bands,
her towering hairstyle and struggles with drugs and alcohol.

The singer’s voice on her best-selling hit “Back to Black”
filled the vast room at the end of the show as models with veils
covering their faces filed past guests such as Catherine Deneuve
and burlesque star Dita Von Teese.

At Givenchy, tough was also on the menu, but designer
Riccardo Tisci used beading, heavy embroidery, and animal skins
to create armour-like dresses and jackets.

The atelier showed 10 looks on Tuesday inspired by Fritz
Lang’s 1927 film “Metropolis.” Hints of Art Deco design on
collars and sleeves gave way to a hard-edged, futuristic
sensibility.

A black jacket, like a suit of armour, was stitched from
thousands of tiny black beads with a black crocodile overlay.
Stars adorned the back of the jacket, while swirls of flowers at
the cuffs were sewn from individual scales. The overall effect
was a Gothic armadillo meets Mad Max.

In another look, the skin of a crocodile was literally
recreated, scale by scale, on a woman’s body, held in place by
invisible tulle. Wrapped around the waist, resembling a Japanese
obi, was the animal’s spine, with two tails creating the belt.

Even the design on a flowing white skirt resembled scales,
sewn via tiny transparent sequins and set off with a bold,
silver chain connecting the skirt to the shoulder.

For the top, Tisci played it simple, choosing a classic
white t-shirt — a look, in fact, that Winehouse may have
approved of.

(Reporting By Alexandria Sage, editing by Paul Casciato)

Jean-Claude Mas, 72, the founder and CEO of French company Poly Implant Prothese (PIP) has not been seen or heard of in public since the scandal broke, potentially affecting 300,000 women around the world.

His company is accused of using sub-standard industrial silicone in some of its implants, which were sold globally before being taken off the market in 2010.

“It’s obvious we have to find him (Mas) and those who had an interest in this company,” French Health Minister Xavier Bertrand told Europe 1 radio Saturday. “They have to answer for their actions.”

“It’s a shady business with lots of money involved,” Bertrand said. “In not using the advertised product (silicone) they tried to make some money, that’s the worst of it, on the health of women.”

PIP’s lawyer has said Mas and the company’s chief financial officer were keeping silent “out of decency and discretion” but were still in the south of France.

Saturday, international police agency Interpol confirmed that it had issued a so-called “red notice” for Mas, but said it was unrelated to his activities at PIP.

Interpol said the notice was related to an incident in Costa Rica in June 2010, when police there say he was arrested for a drunk driving offence but fled the country and did not show up for a court date.

Mas was briefly questioned by police in November 2010 but has never been summoned to court. A judicial source has told Reuters, however, that between four and six executives could be charged by a Marseilles criminal court for aggravated fraud.

Also Saturday, France’s national health insurance agency said it planned to sue over the PIP affair, alleging dishonest practices and fraud. Defendants will be listed as “persons unknown,” a routine practice in France when the identity of an opposing party or parties is not yet determined.

“We think there was fraud starting with the very first (PIP implant) operation,” the agency’s director Frederick Van Roekeghem told France Info radio.

France’s health ministry urged removal Friday of the 30,000 PIP implants purchased by French women and said public health funds will be used to finance those extractions.

“HOME-MADE” GOO

Just how the apparent fraud was covered up is the subject of controversy, with varying accounts of who knew what at the firm in an industrial town outside the southern city of Toulon.

Undated photographs that accompanied news stories in 2010 and were taken by a photographer for the regional newspaper Var-Matin showed workers in blue gowns filling rows of prostheses with silicone gel.

Masked and gloved, they looked as if they worked at an above-board professional health company.

But French health officials discovered last year that PIP was using a home-made brew of silicone, an industrial variety not approved by health authorities.

“You had to have been a chemist to have noticed anything,” a former PIP worker and union chief, Eric Mariaccia, told Reuters.

“The responsible ones aren’t the workers but the heads of the company, notably the four who were linked to production and thus responsible for their quality,” he said.

At the company, which eventually shut its doors in 2010 after bankruptcy, Mas gave the orders, even though he was technically in retirement and CFO Claude Couty worked on operations, Mariaccia said.

“The silicone gel was made at the factory, at PIP,” he said. “It was a ‘home-made’ gel.”

Other workers painted a more menacing picture of operations at PIP.

The false gel had been used since 2001, as PIP bosses were seduced by the price difference between their home-made version and the approved gel, according to an unidentified former PIP executive interviewed for an August 2, 2010 story in Var-Matin.

Reuters was unable to immediately confirm the account given by the Var-Matin source.

Var-Matin quoted the unidentified former PIP executive as saying that while medical silicone gel cost about $60 for 200 kg (441 pounds), PIP’s industrial version cost about $10.

Although nobody at the company talked about the two different kinds of silicone being used in the implants, it was obvious by sight, the ex-manager told Var-Matin.

“The medical gel didn’t run. By contrast, the ‘fake gel’ was like soapy water.”

PIP was able to continue its ruse because periodic checks by regulators were pre-announced and even suppliers of the industrial oil used to make the silicone were lied to, according to the former executive.

“PIP said that this oil was being used to make hand soap.”

Some buyers of the implants, however, were in on the game, Var-Matin quoted the former executive as saying.

“With exports, you’d hear, ‘You want a pack of prostheses. Good ones or bad ones?’ Everything depended on the relationships we had with the distributors,” he said.

(Writing by Alexandria Sage; Editing by Peter Graff)

The deal is a glimmer of hope in what has otherwise been a
drought in European private equity deals as the region’s
sovereign debt crisis has driven up the cost of borrowing money
for such transactions.

Some bankers had voiced concern France Telecom might abandon
the sale process if bids came below expectations due to the high
price of financing. European buyout deals all but ground to a
halt in the second half of the year, with many pulled or
postponed.

Apax, which announced the deal late on Friday, said the
transaction, subject to approval by regulators, will be
submitted to France Telecom’s board in January.

As part of a broader portfolio review, France Telecom had
been seeking to exit Switzerland where it is the third-largest
player with about a 17 percent market share.

France Telecom, whose key markets aside from France are the
U.K., Poland and Spain, is also trying to sell its Austrian
unit. It is also reviewing operations in Africa and the Middle
East as well as its enterprise unit.

The company, which received five offers in the auction of
the unit, had said it hoped to reap 1.5-2 billion euros from the
sale, pledging to return up to 800 million euros of the proceeds
to investors via share buybacks.

France Telecom did not immediately return a phone call or an
email seeking more detail on the deal, which values Orange
Switzerland at 6.5 times its estimated 2011 earnings before
interest, taxes, depreciation and amortisation (EBITDA).

Orange Switzerland has about 1.6 million customers, with
2010 revenues of 1.1 billion euros.

Apax said the mobile sector was a “key investment area” for
the firm. Other investments have included Danish telecoms
operator TDC and Israel’s Bezeq.

France Telecom, whose shares are down 24 percent this year,
has been struggling with intensifying competition in its home
market that have squeezed margins in recent quarters.

In another sign of the high capital demands it faces amid
slowing growth, France Telecom earlier this week bid 891 million
euros to win a block of fourth-generation mobile frequencies as
part of a government auction that raised 2.6 billion euros from
it and key rivals.

Nomura and Rothschild were among the banks advising on the
deal, one of six buyouts with a cumulative value of 10.2 billion
euros Apax was involved with this year.
($1 = 0.7669 euros)

(Reporting by Alexandria Sage and Christian Plumb; Editing by
Hugh Lawson)

France’s Poly Implant Prothese (PIP) shut its doors in 2010 after declaring bankruptcy but financial documents filed by its Delaware-based holding company, Heritage Worldwide Inc., suggest the firm had been in disarray for years amid legal action and rising debt woes.

An examination of filings with the U.S. Securities and Exchange Commission showed that Heritage, a shell company controlled by the founder of PIP, had been swinging in and out of losses and facing multiple lawsuits from women around the world who had experienced health problems following their implants.

Heritage acquired PIP in 2003 and held over 90 percent of its stock, but it in turn was 79 percent controlled by PIP founder Jean-Claude Mas, who has dropped out of sight since the company shut its doors in 2010.

Incorporating in Delaware allowed the holding company to benefit from the U.S. state’s management-friendly laws.

A final quarterly report filed in February 2009 showed that Heritage was searching for loans to repay its debt and sustain its operations.

“There are no assurances that the company will have sufficient funds to execute its business plan, pay its obligations as they come due or generate positive operating results,” Heritage said in the February 2009 filing.

Its final annual report for 2008 warned that liability claims from angry clients could force it out of business.

“Other breast implant manufacturers that suffered such claims in the past have been forced to cease operations or even to declare bankrupt,” the company wrote.

By March 2010, the doors of PIP were shut.

The lawyer for PIP, which is still in liquidation, told Reuters that neither the company nor Mas would comment on the matter. Yves Haddad said silence was out of “decency and discretion.”

Attempts to contact representatives from Heritage were unsuccessful. The company does not appear to still exist, with its trading symbol showing a year high of 0.049 cents in July.

WORLDWIDE LAWSUITS

Today PIP, which sold its products in some 65 countries and for a time was the third-largest maker of breast implants, is at the heart of an international health scare. The French government on Friday urged 30,000 women in France to seek removal of the defective implants made by the company.

As many as 300,000 women worldwide may have received PIP implants, which were exported to Latin American countries such as Brazil and Argentina, and Western European markets such as Britain, Germany, Spain and Italy.

France’s health safety regulator has said that some of PIP’s implants were filled with sub-standard silicone, a cheaper industrial grade that the agency had not approved.

In the SEC filings, Heritage disclosed that it was sued in both Nottingham and London in 2006 by plaintiffs alleging that the envelope surrounding their implants were “not resistant enough and could cause pain and inflammation when they leak.”

Those courts later ordered PIP to pay $2.3 million in damages, a sum it said it could not afford.

American plaintiffs also had sued the company or its PIP subsidiary, according to the filings. Heritage disclosed in 2003 that it had received notice of claims “relating to failures or defects” from at least 600 patients in the United States, in connection with sales of breast implant products from 1996 to May 2000.

The company carried product liability insurance with a limit of $1 million worldwide, except for the U.S. and Canada.

Court records show PIP was sued for product liability numerous times in U.S. state and federal courts. Several cases were voluntarily dismissed after undisclosed settlements with the company. Some cases were withdrawn following PIP’s bankruptcy.

It does not appear that any cases went to trial.

One complaint filed in federal court in Houston includes a warning letter to PIP from the Food and Drug Administration, listing pages of violations discovered during an inspection of a facility in La Seyne, Sur Mer, in France.

The warning letter cited the firm’s failure to investigate the deflation of its implants and a failure to report more than 100 complaints in France and elsewhere to the FDA.

Heritage traces its history to a St. Louis company called Summit Productions Inc that formed in 1983 to produce gospel records, according to SEC filings. The company was an inactive shell that went through name and ownership changes until it became PIP’s holding company in a reverse merger in 2003.

Despite its legal problems, Heritage’s description of its products and business plan appeared rosy. Heritage said PIP produced many varieties of implants “to meet customers’ preferences and needs” and it cited its quality control standards and certifications.

In its 2008 annual report, Heritage described its intention to expand to China, where it was expecting sale authorization for its implants. It cited plans for subsidiaries in Germany, the Netherlands and Belgium to market directly to surgeons.

Heritage’s final quarterly report filed in February 2009 showed a net loss of $1.25 million for the six months ending December 31, 2008. The full-year loss was $5.1 million.

The company earned revenues of $1.2 million within France during that six-month period, and $6.2 million outside the country. Annual revenues in 2008 were $17 million.

(Additional reporting by Tom Hals in Wilmington, Delaware)

(Editing by Daniel Flynn)