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Bristol to Pay $330 Million to Settle Probe

The drug maker's deal allows the company to defer prosecution in the accounting scandal. Two former executives are indicted.

June 16, 2005|From Associated Press

NEWARK, N.J. — Bristol-Myers Squibb Co. agreed to pay $300 million in a deal to defer federal prosecution of a conspiracy charge stemming from an accounting scandal, the U.S. attorney's office in New Jersey said Wednesday. Two former executives were indicted for their alleged roles in the scandal.

Frederick Schiff, Bristol-Myers' former chief financial officer, and Richard Lane, former executive vice president and president of the company's worldwide medicines group, were indicted on charges of conspiracy and securities fraud.

The company said it would record an additional reserve of $249 million in the second quarter related to the settlement. Its shares fell 26 cents to $25.20.

With Wednesday's payment, Bristol-Myers has doled out about $800 million to settle lawsuits and investigations tied to the incentives it paid wholesalers to stockpile inventory, inflating sales and earnings.

In March 2003, Bristol-Myers restated financial results from 1999 through the first half of 2002, reducing profit by $900 million and revenue by $2.5 billion.

"This is a case where Bristol-Myers Squibb failed to disclose relevant information to its shareholders that would have affected its stock price," said Christopher J. Christie, U.S. attorney for New Jersey.

Christie said that the investigation was continuing and that more charges were possible.

As part of the agreement, Chief Executive Peter Dolan will relinquish the title of chairman but will remain CEO. Longtime board member and former American Express Co. Chairman James D. Robinson III will become chairman of Bristol-Myers.

The company also agreed to have former federal Judge Frederick B. Lacey act as an independent monitor of its accounting practices and financial controls. He is already working with the company under a previous agreement with the Securities and Exchange Commission.

New York-based Bristol-Myers reached the deal under what is called a deferred prosecution. In such deals, prosecution is delayed and will be dropped if certain terms are met.

Bristol-Myers' prosecution will be dropped after two years if it meets standards such as retaining Lacey, appointing an additional director, introducing more financial controls and cooperating with the investigation.

The company also must endow a chair at Seton Hall University School of Law in Newark dedicated to teaching business ethics and corporate governance. The person in that chair will conduct an annual seminar for Bristol-Myers executives.

As part of the agreement, the company "accepts and acknowledges responsibility" for the scheme, called "channel stuffing," in which drug wholesalers were given incentives to purchase large amounts of product to make it appear that demand was high.

Bristol-Myers "promoted a corporate culture in which meeting or exceeding company budget targets and the consensus [Wall Street] estimates was considered mandatory," according to a statement of facts in the deferred prosecution agreement.

Schiff's attorney, David Zornow, said his client denied any wrongdoing and expected to be cleared.

"Mr. Schiff did not operate in a vacuum. His conduct was appropriate at all times and known to many others both inside and outside the company," he said.

Lane's attorney, Richard Strassberg, said his client was innocent and would be "fully vindicated" at trial.

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