Wednesday, February 9, 2005
The Irish drug company Elan Corporation, plc, settled SEC civil charges that it made materially false statements regarding its operations in 2000 and 2001. The three primary disclosure violations involved statements about income and gains that failed to note their non-recurring nature, the failure to disclose that $490 million of transactions involved round-trip payments for which there was no real economic gain with partners in a joint venture, and a sale of securities with an affiliated party for which the company did not disclose the relationship. The SEC Litigation Release discussed the effect of the company's disclosure violations:
Elan represented in its public statements that it was generating record amounts of revenue, net income and operating cash flow from drug sales and licensing activities. Elan also claimed that it was making significant progress towards achieving its goal of transforming itself into a fully integrated pharmaceutical company and generating $5 billion of annual revenue by 2005. The complaint alleges that these statements were materially misleading because Elan failed to disclose, or inadequately disclosed, certain transactions that were critical to Elan's perceived success. As a result, investors were led to believe that Elan had achieved record results through improvements in the company's business, when in fact it had not.
Elan agreed to pay $1 in disgorgement -- it is not clear what the basis for that remedy is, and it is an amount much lower than usually seen in SEC enforcement actions involving disgorgement -- and a $15 million civil penalty (now that's more like it). (ph)