Healthy Skepticism Library item: 13280

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.

Publication type: news

Silverman E.
SEC Charges Biovail And Its Execs With Fraud
Pharmalot 2008 Mar 24
http://www.pharmalot.com/2008/03/sec-charges-biovail-and-its-execs-with-fraud/#more-12689

Full text:

In a complaint filed today, the Securities and Exchange Commission accuses the Canadian drugmaker and several former and current senior execs with engaging in fraudulent accounting schemes and making misstatements to analysts and investors. The execs facing charges are former chairman and ceo Eugene Melnyk; former cfo Brian Crombie; the current controller, John Miszuk; and current cfo Ken Howling. Biovail settled the charges and will pay a $10 million penalty.

The SEC complaint alleges that “present and former senior Biovail executives, obsessed with meeting quarterly and annual earnings guidance, repeatedly overstated earnings and hid losses in order to deceive investors and create the appearance of achieving earnings goals. When it ultimately became impossible to continue concealing the company’s inability to meet its own earnings guidance, Biovail actively misled investors and analysts about the reasons for the company’s poor performance.”

Specifically, the SEC says that in October 2003 Biovail and some of its execss “schemed to deceive investors and analysts by falsely attributing nearly half of Biovail’s failure to meet its third quarter 2003 earnings guidance” to a truck accident involving a shipment of one of Biovail’s products. Led by Melnyk, Biovail “intentionally misstated both the effect of the accident on Biovail’s third quarter earnings as well as the value of the product involved in the truck accident. The accident, in fact, had no effect on third quarter earnings.”

Here are a few other things alleged by the SEC…

…Over several reporting periods in 2001 and 2002, Biovail improperly moved off its financial statements and onto the financial statements of a special purpose entity approximately $47 million in expenses incurred in the research and development of some of Biovail’s products. Biovail concocted a fictitious bill and hold transaction to record approximately $8 million in revenue in the second quarter of 2003. And Biovail intentionally misstated foreign exchange losses that caused its second quarter 2003 loss to be understated by about $3.9 million.

In a statement, Biovail says Adrian de Saldanna, vp finance and treasurer, has been appointed interim cfo, and that Howling and Miszuk are being reassigned to different “non-officer” positions. The drugmaker also agreed to an examination of its accounting by an independent consultant. Meanwhile, the Ontario Securities Commission issued a Notice of Hearing against it and the four named execs as part of an investigation begun four years ago alleging similar charges.

Interestingly, the SEC charges come less than two week after Melnyk, who owns nearly 12 percent of Biovail and is best known in Canada as the owner of the Ottawa Senators hockey team, disclosed plans to ice the board and replace it with his own nominees at the drugmaker’s upcoming annual meeting.