More than a decade after Frederick Schiff and Rick Lane allegedly enacted a scheme to artificially inflate financial results reported by Bristol-Myers Squibb, the former executives have settled charges that were brought by the US Securities and Exchange Commission. At the time, Schiff was the chief financial officer and Lane was the former president of the Worldwide Medicines Group.
The SEC maintained the former execs failed to tell investors that Bristol-Myers gave wholesalers tens of millions of dollars of incentives to spur them to buy more products than needed. The practice, known as channel stuffing, allowed the drugmaker to exaggerate revenue by $2 billion and meet its earnings targets and Wall Street analyst estimates, helping to inflate its stock price.
The scheme occurred in 2000 and 2001, and the drugmaker's market value dropped several billion dollars after the practice became known. In 2005, Bristol-Myers paid $300 million and accepted a two-year probation from the Justice Department in a deferred prosecution agreement, to avoid a possible trial. The DPA was arranged by New Jersey Governor Chris Christie, who was US Attorney at the time.
Their penalties? Schiff must pay disgorgement plus pre-judgment interest totaling $130,992, and he is barred from serving as an officer or director of a public company for one year. Lane is required to pay disgorgement plus pre-judgment interest totaling $36,750, and is barred from serving as an officer or director of a public company for one year.
The settlement with the SEC, by the way, is separate from an earlier deal reached two years ago in which the former execs agreed to pay a combined $400,000 to a shareholder settlement fund and, in return, criminal charges were dropped under the deferred prosecution agreement. As part of that deal, the men were barred from serving as a ceo or cfo of a public company for two years (back story).
"This settlement with the SEC concludes Mr. Schiff's litigation with the government, coming in the wake of prior favorable decisions by Judge Hochberg in the federal district court in Newark and the Third Circuit Court of Appeals," Schiff’s lawyer, David Zornow of Skadden Arps, writes us.
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