The Securities and Exchange Commission has charged Canadian pharmaceutical company Biovail and its former CEO and CFO and two current senior executives with engaging in fraudulent accounting schemes and making a series of misstatements to analysts and investors.
Without admitting or denying any wrongdoing, the company has agreed to pay a penalty of $10 million to settle the charges. Four current or former Biovail senior executives still face SEC charges: former chairman and CEO Eugene Melnyk, former CFO Brian Crombie, current controller John Miszuk and current CFO Kenneth G. Howling.
The SEC complaint alleges that the Biovail executives were obsessed with meeting quarterly and annual earnings guidance, and repeatedly overstated earnings and hid losses in order to deceive investors and create the appearance of achieving earnings goals. The SEC alleges that in October 2003, Biovail falsely attributed nearly half of its failure to meet its third quarter 2003 earnings guidance to a truck accident involving a shipment of one of Biovail's products.
The SEC also said that Biovail, over several reporting periods in 2001 and 2002, 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. The company concocted a fictitious bill-and-hold transaction to record approximately $8 million in revenue in the second quarter of 2003, according to the SEC, and intentionally misstated foreign exchange losses that caused its second quarter 2003 loss to be understated by about $3.9 million.
As part of the settlement, Biovail has agreed to an examination of its accounting and related functions by an independent consultant. The company said that Howling and Miszuk are being reassigned to different non-officer positions within the company. Adrian de Saldanha, Biovail's vice president of finance and treasurer, has been appointed interim CFO.
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