In its quest to exclude Forest Laboratories ceo Howard Solomon from doing business with federal healthcare programs, the US Department of Health & Human Services had also considered banning seven other Forest executives, but ultimately decided not to do so as negotiations were held last fall to settle charges of illegal marketing (back story), according to court documents that were released today.
The disclosure prompted another round of criticism from investor Carl Icahn (see pic), who is waging a proxy fight to win four of 10 board seats at the August 18 annual shareholder meeting (see this). "That means nearly one year ago, Forest was faced with a threat to the continuity of its management team and today still has not disclosed a viable, or even any, succession plan," according to a statement issued by The Icahn Group, which holds about 7 percent of Forest shares.
To settle with the government last September, Forest made a $313 million payment that included $164 million in criminal penalties, and signed a corporate integrity agreement. But the OIG sees exclusion as a way of signaling the pharmaceutical industry that paying stiff penalties and pleading to corporate crimes is not enough; instead, execs may also pay a price (read more here).
For its part, Forest has rejected the charges by the OIG, calling the move to exclude the 83-year-old Solomon as “unwarranted and unprecedented” (look here). And more recently, Forest nominated a slate of 10 candidates - including three new independent directors - to join its board.
But Icahn has repeatedly argued that Forest is mismanaged and underperforming, and points to the inability of the board to take constructive action. Toward that end, his firm also expressed outrage that the court documents indicate that Solomon was on hand when the Forest board voted in April to oppose the recent move by the OIG to exclude the elderly ceo (you can read them here).
“We believe that his presence, among other things, flawed the board’s process,” The Icahn Group says. "No special committee of independent directors was established, even though a majority of the board members present at that meeting were affiliated inside directors by ISS standards. Those directors that were independent by those standards did not even meet in executive session. Instead, Solomon was present during all deliberations and during the actual voting."
The court documents pertain to a lawsuit filed in state court in Wilmington, Delaware, by The Icahn Group, which wants access to information about the OIG effort to exclude Solomon. Not surprisingly, Forest fired back with its own statement in which Icahn was chastised for being self-serving and misleading.
"Mr. Icahn's decision to publicize the Delaware litigation is a sideshow and an effort to advance his self-serving agenda in his proxy contest. The documents to which he refers demonstrate what Forest has said all along: that Mr. Solomon has never been accused of any wrongdoing; that the potential exclusion is based solely on his 'association with' Forest; and that HHS-OIG is considering embarking on an unprecedented and unjustified action.
"In trumpeting a single request regarding other Forest executives, Icahn is seizing on a fleeting piece of a complex, six-year negotiation. The fact is that there was no basis for the government's request - it was refused and the government quickly withdrew it. If anything, the documents reflect how the government allowed Forest to agree to a final settlement with the expectation that the entire exclusion issue had been dropped, only to have it raised later by HHS-OIG in an unprecedented action and without a valid basis.
"Icahn's characterization of Forest's Board process is similarly misleading. The Board's determination to challenge HHS-OIG's unprecedented action was made by a majority of independent directors, advised by outside counsel, who were fully informed of the matters concerning the related Department of Justice investigation and its resolution over a six-year period. Icahn is misusing these documents in an effort to draw attention away from the fact that his nominees are unqualified and conflicted by their service on the boards of companies with which Forest competes for product opportunities."