Risk & Compliance

Bristol-Myers to Pay $150 Million in SEC Settlement

On the heels of last week's $300-million class-action-suit settlement, the drug maker agreed to pay a super-sized fine to erase accounting fraud al...
Stephen TaubAugust 5, 2004

Bristol-Myers Squibb Co. will pay $150 million to settle Securities and Exchange Commission charges that alleged the pharmaceutical giant inflated sales and earnings to fool investors. The fine, double what published reports had predicted, was settled without company officials admitting or denying guilt.

Dan Gregus, an SEC regional director, told Bloomberg that the payout was the second largest obtained by the SEC in an accounting case against a large publicly traded company.

Bristol-Myers officials also agreed to appoint an independent adviser to review and monitor the company’s accounting practices, financial reporting, and internal controls.

The commission’s complaint, filed in the U.S. District Court for the District of New Jersey, accused Bristol-Myers of three related charges: selling excessive amounts of pharmaceutical products to its wholesalers ahead of demand (channel stuffing); improperly recognizing revenue on the sales of $1.5 billion to its two largest wholesalers; and using “cookie jar” reserves to meet its internal sales and earnings targets and analysts’ earnings estimates. According to the complaint, Bristol-Myers reportedly engaged in the scheme from the first quarter of 2000 through the fourth quarter of 2001.

In addition, the SEC charged Bristol-Myers with covering the wholesalers’ carrying costs and guaranteeing them a return on investment until the products were sold. “When Bristol-Myers recognized the $1.5 billion in revenue upon shipment, it did so contrary to generally accepted accounting principles,” noted the complaint.

“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,” added Stephen Cutler, director of the SEC’s enforcement division. “The company’s conduct warrants a stiff civil sanction.

Cutler also warned that the SEC investigation would continue and focus on, among other things, “those individuals responsible for the company’s failures.”

Last week, Bristol-Myers paid $300 million to settle a class-action lawsuit related to wholesaler inventory and other accounting matters, and the company’s investment in, and relationship with, ImClone Systems Inc., and ImClone’s drug, Erbitux.

Like the SEC settlement, company officials made no admission of wrongdoing in the ImClone case.

In March 2003, however, Bristol-Myers officials did admit that the company overstated sales by about $2.5 billion during a three-year period, forcing the drug maker to restate earnings downward by $900 million.

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