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.
Here is the Schiff judgment and here is the Lane judgment.
handshake pic thx of o5com on flickr
7 Comments
May I observe that the penalties scarecely seem worth what could have been 10 years of SEC effort?
Death penalty for book cooking should be considered. However:Who wants to kill whole Manhattan and beyond?
Oh, I don't know keiner. Have you driven in the traffic in Manhattan lately, might be a worthy idea.
I got a good case of disgorgement from the debacle of Schiff et al. For those not familiar with the term, basically means Freddie will need to pay the money back.
How in the name of justice these two rogue characters get off this easy, when they RUINED retirement security of millions of retirees and thousands of employees. They should at least get long term jail and may be even 10,000 lashes with nails(like in Singapore). And by the way biggest of them all is not even mentioned in this article who happens to be Heimbold......
Raj, you think these guys got off light? Read the story of justice undone, wherein one of the other rogues in the unholy trio was Dr Andrew Bodnar, who was handed down the hefty sentence of having to write a book about his experience.
At least we know that this one won't be entitled "In the Belly of the Beast".
http://www.nytimes.com/2009/06/09/business/09bristol.html
As an ex-BMS employee there when this scheme went down, this is pitiful. A large part of the stock drop from the 70s to the 20s for years was due to these two crooks.
They both left with millions from stock options, the remaining every day employees got screwed. But they probably sleep well at night.
Raj is correct, Heimbold was their enabler and he made multi-hundreds of millions.