“While Romney was a director of the Damon Corporation, the company was defrauding Medicare of millions.”

A full head of hair on Mitt Romney’s head disappears as he morphs into a very bald, smiling Rick Scott. It’s an ad from AFSCME, a public workers union, that seeks to equate the Republican presidential candidate with Scott, the current governor of Florida. Scott’s approval numbers have been among the lowest in the country is recent months.

“What kind of businessman is Mitt Romney?” the ad asks. “While Romney was a director of the Damon Corp., the company was defrauding Medicare of millions. Prosecutors called it ‘corporate greed run amok.’ The company was fined $100 million. But Romney himself made a fortune. Corporate greed … Medicare fraud. Sound familiar?”

We’ve written frequently about Scott’s time running hospital chain Columbia/HCA and its troubles surrounding Medicare (You can read up on it here.) Here, we’re checking the ad’s initial claim, that while Romney was “a director of the Damon Corp., the company was defrauding Medicare of millions.”

Romney’s ties to a company charged with Medicare fraud haven’t been discussed much lately, but it’s old news to people in Massachusetts.

The Boston media investigated the facts of the case when Romney ran for governor in 2002 and won. It’s also addressed in The Real Romney, a new biography by reporters with the Boston Globe.

The story begins in 1989, when Romney was the head of Bain Capital, a private equity firm that specialized in buying troubled companies, turning them around, and then selling them for a profit. That year, Bain bought Damon Corp., a medical testing company based in Needham, Mass.

Bain took the company public in 1991, and Romney served on the company’s board of directors. In 1993, Bain orchestrated a sale of the company to Corning Inc., getting a handsome return on its investment and earning Romney himself $473,000, according to The Real Romney. After the sale, Corning closed the main facility in Needham, laying off 115 people.

In October 1996, federal prosecutors announced that Damon was agreeing to pay $119 million in both civil and criminal fines after pleading guilty to defrauding Medicare. The company was  providing doctors with forms that didn’t make clear what tests included, so doctors were checking off additional tests that weren’t necessary, according to the Globe’s summary of the government’s case.

The overbilling went from 1988 through 1993, prosecutors said. “This is a case, pure and simple, of corporate greed run amok,” U.S. Attorney Donald Stern said when the settlement was announced.

Romney was never implicated in the case. His role became an issue later, in 2002, when he ran for governor. Romney claimed that he helped uncover the fraud, but Globe reporting put that claim into question. The Globe reported that court records showed fraudulent activity occurred under Bain’s watch, and that prosecutors gave the credit to Corning for stopping the fraud. Aides later said Romney’s remarks that he helped uncover the fraud were misunderstood. We asked the campaign for comment, but we didn’t hear back.

In The Real Romney, authors Michael Kranish and Scott Helman note that Romney seemed to have two views about what happened at Damon. “On the one hand, he said he hadn’t known what was going on at Damon; on the other, he said he’d helped to put a stop to practices later found to be fraudulent. One thing that looked good at Damon was the bottom line for Bain. In the end, it was a profitable deal for both the firm and Romney, however tainted by legal troubles and layoffs it may have been.”

Our ruling

The ad claims that, “While Romney was a director of the Damon Corporation, the company was defrauding Medicare of millions.” That’s true, but Romney was never implicated personally with the fraudulent activity at the company, and it was one of many companies with which Bain was involved. It’s also difficult to assess whether Romney knew about the fraud or should have known, and what he did to stop it. So the statement is correct but leaves out context. We rate this statement Mostly True.