Risk & Compliance

Herpes-Drug Maker CFO Expects Wells Notice

The Biiovail chairman may also face charges.
Stephen TaubMay 16, 2007

U.S. regulators are turning up the heat on Biovail. The Canadian specialty drug company announced Wednesday that CFO Kenneth Howling and chairman Eugene Melnyk and have been told to expect Wells notices from the Securities and Exchange Commission.

The SEC staff is in the process of providing a similar notice to one current executive and one former finance executive, Biovail added.

The company later announced that Melnyk would retire on June 30, the 20th anniversary of Biovail’s listing on the Toronto Stock Exchange.

Earlier this week, Biovail itself received a Wells notice regarding a previously disclosed investigation of accounting and disclosure practices for fiscal 2003 and certain transactions associated with an acquisition in 2002. The issues under scrutiny include whether the company improperly recognized revenue and expenses in certain periods, whether it made improper disclosures related to those statements, and whether it provided misleading disclosures regarding Biovail’s forecast of a revenue shortfall for the quarter ending September 30, 2003, according to Biovail,.

The issues raised by the SEC regarding Melnyk and Howling are similar to those raised regarding the company, Biovail stated.

Under SEC procedures, a Wells notice indicates that the staff has made a preliminary decision to recommend that the commission bring a civil action; recipients have the opportunity to respond to the SEC staff before a formal recommendation is finalized.

Biovail stressed that it continues to cooperate with the SEC.

Melnyk — also the owner of the Ottawa Senators hockey team, which in strong position to win its first Stanley Cup — last year was charged by the Ontario Securities Commission with violations of disclosure and reporting regulations.

The Canadian regulator alleged that Melnyk did not meet certain reporting obligations concerning Biovail shares owned by four trusts; Melnyk disputed the charges, the Associated Press reported at the time.

Earlier this month, the commission rejected a proposed settlement with Melnyk, according to the Canadian Press, which added that the case is scheduled for a hearing on June 4.