Monday, May 21, 2007
Canadian pharmaceutical company Biovail Corp. and its former CEO have been running into a bit of trouble with securities regulators in the U.S. and Canada recently. On May 14, the company disclosed (here) that the SEC had sent a Wells Notice that the Enforcement Division staff intends to seek authorization from the Commission to file a civil action related to accounting problems. According to Biovail's 6-K (foreign Issuer) filing:
On May 14, 2007, the Company issued a press release acknowledging that it had received a "Wells Notice" from the staff of the SEC alleging violations of federal securities laws. The notice relates to the staff's investigation of the Company's accounting and disclosure practices for the fiscal year 2003 and certain transactions associated with a corporate entity acquired by the Company in 2002, as described above. These issues include whether the Company improperly recognized revenue and expenses for accounting purposes in relation to its financial statements in certain periods, disclosure related to those statements, and whether the Company provided misleading disclosure concerning the reasons for Biovail's forecast of a revenue shortfall in respect of the three-month period ending September 30, 2003. Under the Wells process established by the SEC, the Company has the opportunity to respond to the "Wells Notice" before the staff makes a formal recommendation regarding what action, if any, should be brought against the Company by the SEC. The Company continues to cooperate with the SEC. The Company cannot predict either the outcome or the timing of when this matter may be resolved.
Biovail noted that it had agreed to toll the five-year statute of limitations until July 31, 2007. Along with the potential civil charges comes a bit more ominous disclosure about a criminal investigation: "Recently, the Company was contacted by the United States Attorney's Office for the Eastern District of New York ("EDNY"), who informed the Company that they were conducting an investigation into the same matters that the SEC is investigating. The EDNY has also recently requested interviews of several Biovail employees. The Company intends to cooperate with the investigation. The Company cannot predict the outcome or timing of when this matter may be resolved."
Biovail's former CEO and chairman of the board, Eugene Melnyk, agreed to an administrative settlement with the Ontario Securities Commission (here) on May 18, 2007, regarding trading in company shares through four trusts set up by Melnyk in the Cayman Islands during a time when Biovail executives were not permitted to trade. The company's shares are listed on the Toronto Stock Exchange, and the settlement with the OSC requires Melnyk to pay $1 million (Cdn.) in a penalty and costs, and imposes a one-year ban on serving on the board of directors of a publicly-traded company. Melnyk resigned as Biovail's CEO in 2004, and announced recently his retirement from the board as of June 30.
If it's any consolation for Melnyk, the NHL team he owns, the Ottawa Senators, made the Stanley Cup finals for the first time in the history of this iteration of the Senators, overcoming years of underachievement in the playoffs. Getting your name on what is probably the most famous trophy in professional sports can make a lot of bad thoughts disappear. (ph)