16 juin, 2005 11:25
Update 9: Bristol-Myers Reaches $300M Settlement
06.16.2005, 03:26 AM
Two former executives of Bristol-Myers Squibb Co. were indicted on federal charges related to an accounting scandal at the drug company, which also has agreed to pay $300 million to defer prosecution related to its fraudulent manipulation of sales and income.
Frederick Schiff, Bristol-Myers' former chief financial officer, and Richard Lane, former executive vice president and president of the company's worldwide medicines group, were indicted Wednesday on charges of conspiracy and securities fraud.
"This is a case where Bristol-Myers Squibb failed to disclose relevant information to its shareholders that would have affected its stock price," said Christopher J. Christie, U.S. Attorney for New Jersey.
Christie declined to answer questions about why more executives, including Bristol-Myers CEO Peter R. Dolan, were not indicted. Christie said the investigation is continuing and more charges are possible.
The New York-based company said it would record an additional reserve of $249 million in the second quarter related to the settlement.
With Wednesday's payment for shareholders, Bristol-Myers has doled out about $800 million to settle lawsuits and investigations tied to the incentives it paid wholesalers to stockpile inventory, inflating sales and earnings. In March 2003, Bristol-Myers restated $900 million in profits and $2.5 billion in revenue reported from 1999 through the first half of 2002.
As part of the agreement, Dolan will relinquish the title of chairman but will remain CEO. Longtime board member and former American Express Co. Chairman James D. Robinson III will become chairman. The company also agreed to have a former federal judge, Frederick B. Lacey, act as an independent monitor of its accounting practices and financial controls. Lacey is already working with the company under a previous agreement with the Securities and Exchange Commission.
Bristol-Myers reached the deal under what is called a deferred prosecution. Under such arrangements, prosecution is delayed and will be dropped if certain terms are met. Bristol-Myers' prosecution will be dropped in 2007 if it meets standards such as retaining Lacey, appointing an additional director, introducing more financial controls, and cooperating with investigators.
The company must also endow a chair at Seton Hall University Law School in Newark dedicated to teaching business ethics and corporate governance. The person holding that position will conduct an annual seminar for Bristol-Myers executives.
As part of the agreement, the company "accepts and acknowledges responsibility" for the scheme, called "channel stuffing," in which drug wholesalers are given incentives to purchase large amounts of product to make it appear that demand is high.
"BMS promoted a corporate culture in which meeting or exceeding company budget targets and the consensus (Wall Street) estimates was considered mandatory. Achieving these goals was known as `making the numbers' or `hitting the numbers,'" according to a statement of facts in the deferred prosecution agreement.
In a statement, Dolan said he was "very pleased" to have an agreement with the U.S. attorney.
Christie called Schiff the company's "chief concealment officer" and said that Lane was "a cheat." If found guilty, the two face up to 10 years in prison and $1 million in fines.
In a statement, Schiff lawyer David Zornow said his client denies any wrongdoing and expects to be cleared. "Mr. Schiff did not operate in a vacuum; his conduct was appropriate at all times and known to many others both inside and outside the company," he said.
Lane's lawyer, Richard Strassberg, said his client is innocent and will be "fully vindicated" at trial.
"The government is attempting to prosecute Rick Lane for innocuous, cautious statements made during routine telephone conference calls with professional Wall Street analysts," Strassberg said in a statement.
The former executives were charged with instructing employees to create the incentive packages to inflate sales and profit figures, while misleading Wall Street analysts and investors about those measures.
They "brushed aside and ignored concerns expressed by BMS employees about the use of financial incentives to the wholesalers, the costs BMS was incurring from the sales incentives to the wholesalers, and the build-up in excess inventory at the wholesalers," according to the indictment.
It cited, among others, an e-mail Lane wrote May 19, 2000, to worldwide medicines personnel: "Sales continue to be concerningly weak. We need to make our May target! (W)hen will this start to happen??"
AP Business Writer Theresa Agovino in New York contributed to this story.
