The Securities and Exchange Commission has filed civil fraud charges against two former executives of Bristol-Myers Squibb Co. stemming from an accounting scandal at the drug giant.
Frederick S. Schiff, a former chief financial officer, and Richard J. Lane, a former president of Bristol’s Worldwide Medicine Group, were accused by the SEC of orchestrating a fraudulent earnings management scheme that “deceived investors about the true performance, profitability and growth trends of the company and its U.S. medicines business.”
According to the commission’s complaint, at Schiff and Lane’s direction Bristol-Myers sold excessive amounts of pharmaceutical products to wholesalers ahead of demand and improperly recognized revenue from $1.5 billion of such sales to its two largest wholesalers. Further, the SEC alleged, when the company’s financials still fell short of internal targets and Wall Street forecasts, Schiff employed “cookie jar” reserves to further inflate its earnings.
The commission charged Schiff and Lane with violations of the antifraud, reporting, books and records, and internal controls provisions of the federal securities laws. The complaint also charged Schiff with lying to PricewaterhouseCoopers in connection with the firm’s 2000 and 2001 audits of the company.
“The desire to meet earnings targets cannot override corporate officers’ responsibilities to public shareholders to assure that the company’s public pronouncements reflect financial reality,” said Linda Chatman Thomsen, director of the SEC’s Division of Enforcement, in a statement.
The commission is seeking financial penalties against Schiff and Lane, return of their illegally received gains, and a bar against their serving as an officer or director of a publicly traded company.
In June, both men were indicted by the U.S. Attorney for the District of New Jersey for their roles in the accounting scandal. If convicted, each faces a maximum penalty of 15 years in prison and a $1 million fine. Also that month, the company agreed to a deferred-prosecution arrangement.