Monday, March 24, 2008

The SEC Nails Biovail: Will 60 Minutes Issue a Retraction?

In the past I've discussed a creepy little Canadian drug company called Biovail, focusing on its No. 1 talent -- which is not making drugs, but rather casting blame on short-sellers, and gulling naive members of the press. Biovail was notably successful in that regard, gaining an atrocious 60 Minutes segment that was subsequently excoriated for its sheer stupidity.

Just about every single bit of news that has come out on Biovail has indicated that the short-sellers have been on the money, and that Biovail was a piece of dreck. Its CEO, Eugene Melnyk, skeedaddled, and word emerged last month that Biovail was the subject of a federal grand jury probe.

Today, the SEC weighed in with a fresh set of charges against Biovail, proving again that the shorts have been right and that the 60 Minutes piece was bunk.

Here's what the SEC says:

The Commission's complaint alleges that present and former senior Biovail executives, obsessed with meeting quarterly and annual earnings guidance, repeatedly overstated earnings and hid losses in order to deceive investors and create the appearance of achieving earnings goals. When it ultimately became impossible to continue concealing the company's inability to meet its own earnings guidance, Biovail actively misled investors and analysts about the reasons for the company's poor performance.

Biovail settled the Commission's charges and will pay a $10 million penalty. Four current or former Biovail senior executives still face SEC charges: former chairman and chief executive officer Eugene Melnyk; former chief financial officer Brian Crombie; current controller John Miszuk; and current chief financial officer Kenneth G. Howling.

"This is another case involving the tone at the top of a public company. It demonstrates the Commission's commitment to holding individuals accountable when they create a corporate culture of fraud and deceit," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement.

"We allege that Biovail and senior executives engaged in a pattern of systemic, chronic fraud that impacted its public filings of quarterly and annual reports over the course of four years," added Mark K. Schonfeld, Director of the SEC's New York Regional Office. "In an effort to conceal the fraud, Biovail's senior officers intentionally misled the company's auditors and the investing public, showing their complete disregard for their responsibilities to shareholders."
Of course, if the SEC is interested in holding individuals accountable for fraud and deceit, it remains to be explained why its two-year-old investigation of the fraud-ridden has yet to bear fruit.

The SEC complaint, while lurid, actually leaves out a lot of stuff, such as the fact that a junk lawsuit filed by Biovail persuaded Banc of America Securities, which had been issuing negative reports on Biovail, to stop following the company. Despite all the post-Enron rhetoric about the sanctity of independent analysts, the SEC has done woefully little against companies like Biovail and Overstock that want analysts to be obedient little puppies.

As for this particular piece of dreck: Will 60 Minutes issue a retraction for lending itself to the Biovail blame-shifting campaign -- or even have the decency of updating the idiotic "battle of the titans" article on its website? Don't bet on it.

UPDATE: The Ontario Securities Commission piles on.

© 2008 Gary Weiss. All rights reserved.

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