Tuesday, August 23, 2005
The SEC added its two cents to the Bristol-Myers Squibb Co. channel-stuffing accounting fraud by filing civil securities fraud charges against former CFO Frederick Schiff and executive vice president Richard Lane. Schiff and Lane were indicted this past June on conspiracy and securities fraud charges arising from the scheme to pump up the company's sales (indictment here). As described in the SEC's Litigation Release (here):
The Complaint alleges that from the first quarter of 2000 through the fourth quarter of 2001, at Schiff and Lane's direction, Bristol-Myers stuffed its distribution channels with excessive amounts of its pharmaceutical products ahead of demand to meet the Company's internal earnings targets and the consensus estimate of Wall Street securities analysts, and improperly recognized revenue from $1.5 billion of such sales to its two largest wholesalers. According to the Commission's Complaint, when Bristol-Myers' results still fell short of its targets and the consensus estimate, at Schiff's direction, the Company used "cookie jar" reserves to further inflate its earnings. The Complaint also alleges that at Schiff's direction, and as a result of the channel-stuffing, Bristol-Myers also underaccrued for Medicaid and prime vendor rebate liabilities. As a result of its channel-stuffing and improper accounting measures, Bristol-Myers reported results that met or exceeded the consensus estimate every quarter during the scheme.
The Commission's complaint is here. Bristol-Myers has already settled the SEC action, and entered into a deferred prosecution agreement with the U.S. Attorney's Office for the District of New Jersey. (ph)