NEW YORK (CNN/Money) -
A Brooklyn funeral home and a New Jersey company that harvests body parts from corpses are being investigated for their alleged roles in a body snatching ring that sold parts to companies specializing in medical grafts, sources close to the investigation said Friday.
The Brooklyn district attorney's office declined to comment on the investigation. But sources close to the investigation acknowledged that it has been going on for about one and a half years, focusing on Michael Mastromarino of Biomedical Tissue Services Ltd. of Fort Lee, N.J., who allegedly harvested body parts illegally from the Daniel George funeral home in Brooklyn.
The firms that bought the allegedly black-market tissue have not been accused of any wrongdoing. Human tissue is usually obtained from non-profit tissue banks. In the U.S., it's illegal to buy and sell human tissue.
Wendy Crites-Wacker, spokeswoman for Regeneration Technologies (down $0.66 to $7.28, Research), a company in Alachua, Fla., said her company has severed all ties with Biomedical Tissue Services, their former source for some of the body parts used to make medical grafts, or allografts.
"We had previously terminated the relationship with Biomedical Tissue Services and we are cooperating with the appropriate authorities on this issue," said Crites-Wacker, who declined to say when the termination took place.
Crites-Wacker also said that her company's BioCleanse process, in which bones and tendons are sterilized through a melange of chemicals, temperature and pressure, ensures that its products are safe.
Two other allograft companies have been identified as customers of Biomedical Tissue Services: LifeCell Corp. (down $2.82 to $17.33, Research), of Branchburg, N.J. and Tutogen Medical Inc. (down $0.15 to $4.06, Research) of West Paterson, N.J.
LifeCell Corp. had issued a Friday statement saying it had voluntarily recalled some human tissue products after questions were raised about Biomedical Tissue Services.
"Specifically, the company recalled all lots of product that were produced using tissue from Biomedical Tissue Services (BTS)," LifeCell said in a release.
LifeCell, which markets products made from human tissues that are used in surgical procedures, said it recalled certain AlloDerm, Repliform and GraftJacket products on Sept. 30.
LifeCell's stock price slid about 5 percent this morning, and a Piper Jaffray analyst attributed the slump to a New York Daily News story that first reported on the investigation.
"We believe this morning's weakness in LifeCell's shares is related to a news article that alleges LifeCell inadvertently received tissue from an illegal body-snatching ring," said Raj Denhoy of Piper Jaffray, in a written report.
LifeCell said in the statement all other tissues supplied by Biomedical Tissue Services remain "on hold until the discrepancies in the donor documentation can be resolved."
Denhoy said that LifeCell did not appear to do anything illegal and that "LifeCell itself was the victim of fraud," referring to allegations that Biomedical Tissue Services forged death certificates and family consent forms.
Denhoy said that LifeCell receives tissue from 30 sources, "so the loss of one will likely not impact the underlying business," though increased regulatory scrutiny could drive down the stock price.
"While LifeCell and the other tissue companies appear to have done nothing wrong, this event could increase regulatory and media scrutiny of the business," said Denhoy, who rates the company market perform. "We recently downgraded LifeCell shares on competitive concerns and today's revelations may pressure the stock further."
Eric Franz, the attorney representing funeral home owners Debora Johnson and Robert Nelms, said his clients "did not participate in any criminal conduct whatsoever."
Attempts to reach Mastromarino and his company Biomedical Tissue Services were unsuccessful. The Daily News reported that Mastromarino declined to comment.
Regeneration Technologies produces heart valves, bone and tendon implants and bone paste, which is used to plug holes. LifeCell specializes in AlloDerm, a "dermal matrix" made from human skin that is used in grafts. Tutogen focuses on bone and dental implants.
--from staff and wire reports
To read more about the industry of harvesting grafts from corpses, click here.