Risk & Compliance

Cardinal Settles Suit for $600 Million

The drug-distribution company puts a class-action lawsuit behind it, but the founder and chairman still has to deal with a Wells notice from the SEC.
Stephen TaubJune 1, 2007

Cardinal Health Inc. has agreed to pay $600 million to settle a class-action lawsuit regarding its financial reporting and disclosures between 2000 and 2004. The drug-distribution company had put aside that money in April in anticipation of the settlement.

The settlement announcement comes one week after Cardinal Health shuffled its finance department. Stuart Laws was promoted to vice president and chief accounting officer, effective June 30, making him the company’s principal accounting officer. In addition, executive vice president, chief accounting officer, and controller Eric R. Slusser submitted his resignation, effective June 29. Cardinal said that Slusser will remain the company’s principal accounting officer until he officially leaves to become CFO at another public company.

Laws has been Cardinal’s vice president of accounting and reporting since January. He previously was CFO of Damon’s International Inc., a restaurant operations and franchising company, and a senior manager at Ernst & Young.

In June 2004, Cardinal disclosed that its audit committee, as well as the Securities and Exchange Commission and the U.S. Attorney’s Office for the Southern District of New York, were investigating how the company classified revenue from its pharmaceutical-distribution business. CFO Richard Miller resigned a month later.

That September the company restated its results for the three prior years and for the first three quarters of fiscal 2004. The revisions related primarily to bulk deliveries to customers, cash discounts earned from suppliers in exchange for prompt payment, and balance-sheet reserve and accrual adjustments.

In January 2006, the company reached an agreement in principle with the SEC staff on the basic terms of a proposed settlement, which, according to Cardinal, would require the company to pay a $35 million penalty. Earlier this year, Cardinal disclosed that founder and chairman Robert D. Walter and four unnamed former officers had each received a Wells notice from the SEC, which suggests they may face charges. The company added that its own settlement discussions with the SEC are continuing.