Friday, October 27, 2006

The Expanding Criminal Investigation of Bristol-Myers

Bristol-Myers Squibb has run into some rough times dealing with the Department of Justice after thinking it had left those troubles behind when it entered into a deferred prosecution agreement in June 2005.  That case involved "channel stuffing" by the company to pump up its revenue figures, and resulted in a settlement with the SEC and the agreement with the U.S. Attorney's Office for the District of New Jersey.  In July 2006, however, it came out that the company's purported agreement to keep a generic version of Plavix, a major revenue source, from the market was the subject of an antitrust investigation by the Department of Justice.  That led to the termination of CEO Peter Dolan after the compliance monitor appointed as part of the deferred prosecution agreement, along with U.S. Attorney Christopher Christie, recommended his removal for the Plavix affair (or fiasco, if you prefer).  Now comes the latest disclosure that the USAO's criminal investigation includes looking into whether the conduct related to Plavix violated the injunction issued as part of the SEC case, which could subject Bristol-Myers to a criminal contempt.  A company press release (here) describes the state of the investigations:

As previously disclosed, the Antitrust Division of the United States Department of Justice is conducting a criminal investigation regarding the proposed settlement of the pending PLAVIX® patent litigation with Apotex. The company is cooperating fully with the investigation. It is not possible at this time reasonably to assess the outcome of the investigation or its impact on the company. It is also not possible at this time reasonably to assess the impact of the investigation, if any, on the company’s compliance with the Deferred Prosecution Agreement (DPA) with the United States Attorney’s Office for the District of New Jersey (USAO). Also as previously disclosed, the USAO initiated an investigation that is being conducted by the Monitor and the USAO into corporate governance issues relating to the company’s negotiations of the proposed settlement with Apotex. This investigation has been expanded to include a review of whether there was any violation of Federal securities laws in connection with the proposed settlement with Apotex under the terms of the previously disclosed Consent Order the company entered into with the U.S. Securities and Exchange Commission in August 2004 (SEC Consent). It is not possible at this time reasonably to assess the outcome of the investigation or its impact on the company. (Emphasis added)

The SEC Litigation Release (here) from August 6, 2004, describes the settlement that included "a permanent injunction against future violations of certain antifraud, reporting, books and records and internal controls provisions of the federal securities laws."  This sounds like the standard, broad "sin no more" injunction agreed to in many cases.  The problem for Bristol-Myers is that the company's disclosures about  potential threats to its Plavix sales may have been inadequate and the negotiations for the ill-fated agreement to keep the generic version off the market should have been disclosed earlier.  Disclosure problems in turn may violate the books and records and internal control provisions of the securities laws, which the company is enjoined from doing.  As discussed in an earlier post (here), a violation of the securities law may also violate the deferred prosecution agreement and could restart the channel-stuffing case along with anything that might arise from the Plavix investigation.  The company would have virtually no defenses on the channel stuffing after having admitted its liability as part of the agreement with the USAO.  Look for Bristol-Myers to be more than cooperative in this new investigation in order to avoid any thoughts that it violated the terms of the deferred prosecution agreement.  (ph)

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