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Bristol-Myers to Pay $150-Million Settlement

The deal to resolve civil fraud claims consists of a $100-million fine and a payment to a fund for shareholders.

August 05, 2004|From Reuters

Drug maker Bristol-Myers Squibb Co. will pay $150 million to settle civil fraud charges, one of the largest settlement payouts ever by a U.S. corporation, authorities said Wednesday.

The Securities and Exchange Commission charged Bristol-Myers with improperly booking $1.5 billion in revenue in 2000-01 by coaxing wholesalers to buy more drugs than they could sell.

The agency said its continuing investigation would focus on "those individuals responsible for the company's failure."

"Bristol-Myers' earnings-management scheme distorted the true performance of the company and its medicines business on a massive scale and caused significant harm to the company's shareholders," said SEC Enforcement Director Stephen Cutler.

The $150-million payment consists of a fine of $100 million and a payment to a shareholders' fund of $50 million. It comes only days after Bristol-Myers agreed to pay $300 million to settle a shareholder class-action lawsuit over the accounting allegations and problems with developing a cancer drug with biotechnology company ImClone Systems Inc.

New York-based Bristol-Myers, without admitting or denying charges, agreed to bring on an independent advisor to monitor its accounting practices, financial reporting and internal controls, the SEC said.

Bristol-Myers said it would use legal reserves of $470 million to pay for the SEC and class-action lawsuit settlements.

The company has not announced plans to increase its remaining $20-million litigation reserve fund as it cooperates with a related criminal investigation by a federal prosecutor in New Jersey of the sales to wholesalers.

Bristol-Myers shares closed up 16 cents at $23.30 on the New York Stock Exchange.

"Drug companies had gotten into the habit of manipulating wholesaler inventories, but the magnitude at Bristol-Myers was unprecedented," said Sena Lund, an analyst with brokerage Cathay Financial.

"The federal criminal investigation in New Jersey could subject the company to another big financial penalty and even land its senior managers in prison," Lund said.

But the SEC settlement will enable Bristol to focus more intently on efforts to restore profit growth, Lund added. Wall Street expects the company's profit to fall this year, and again in 2005 and 2006, as its drugs face competition from cheaper generics.

The SEC began its probe in July 2002 after Bristol-Myers disclosed it had artificially boosted sales by enticing wholesalers to heavily overstock medicines, a practice called channel stuffing.

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