The Securities and Exchange Commission filed civil fraud charges yesterday against two former Bristol-Myers Squibb Co. executives, alleging they organized a scheme in 2000 and 2001 to "stuff" wholesale pharmaceutical channels with phony sales to inflate the company's earnings and stock price.
The civil charges, filed yesterday in federal court in Newark, follow a June criminal indictment of the two men, Frederick S. Schiff, Bristol's former chief financial officer, and Richard J. Lane, former president of its Worldwide Medicines Group, on related charges.
The same month, the New York-based drugmaker agreed to pay $300 million in fines and restitution under a deferred prosecution agreement with federal prosecutors on top of $150 million paid under an August 2004 agreement with the SEC.
In the suit filed yesterday, the SEC alleges that under the direction of Schiff and Lane, the company sold "extraordinary amounts" of drugs to wholesalers by, among other things, providing financial incentives that covered their carrying costs. As a result, the company improperly booked $1.5 billion in sales that did not meet accounting standards and were fraudulent, according to the SEC.
The SEC said that during conference calls on the company's earnings, Lane misled analysts who specifically asked about inventory building up in the supply chain.
"I don't think there was really any significant wholesaler inventory activity in the quarter," Lane said during an October 2000 conference call, according to the complaint.
Both defendants left the company in 2002.
Richard M. Strassberg, a lawyer for Lane, said in a statement that the SEC's allegations are a "rehash of the meritless" criminal charges. He added that the SEC was trying to "scapegoat" Lane "for innocuous, cautious statements made during routine telephone conference calls with professional Wall Street analysts about matters that were well known throughout Bristol-Myers Squibb and the pharmaceuticals industry."
Lawrence S. Spiegel, a lawyer for Schiff, said in a statement: "The SEC's complaint piles onto other charges filed against Mr. Schiff by the U.S. attorney's office in June -- to which he has already pleaded not guilty. Mr. Schiff denies wrongdoing and intends to defend himself vigorously."
According to the SEC court papers, the alleged scheme grew out of ambitious company programs known as "Double Double" and "Mega-Double," designed to ramp up sales and earnings starting in 1994.
According to a spokesman for the SEC's regional office in Chicago, which filed the complaint, both defendants reported to Peter R. Dolan, who was named president of the company in January 2000 and chairman and chief executive in May 2001.
A Bristol-Myers spokesman declined to comment.
As part of the June agreement with the Justice Department, the company agreed to separate the roles of board chairman and chief executive.
The SEC is seeking unspecified financial penalties and the barring of Schiff and Lane from serving as officers of a public company in the future.