The US Securities and Exchange Commission said yesterday it has charged Canadian drugmaker Biovail and four of its executives with “engaging in a number of fraudulent accounting schemes and making a series of misstatements to analysts and investors”.

According to the Commission, between 2001 and 2003 senior executives at the firm “repeatedly overstated earnings and hid losses in order to deceive investors and create the appearance of achieving earnings goals” and then, when they could no longer hide the fact that targets were being missed, “actively misled” investors and analysts about the reasons behind the poor performance.

In one example, the SEC alleges that, in October 2003, the firm and certain executives claimed that an accident with a truck containing Biovail products was partly responsible for the company failing meet its third-quarter earnings guidance when, in fact, the accident had no effect whatsoever.

“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,” explained Mark K Schonfeld, Director of the SEC's New York Regional Office, and in order to conceal this fraudulent activity, the company’s senior officers “intentionally misled” both auditors and investors, “showing their complete disregard for their responsibilities to shareholders”, he added.

$10 million settlement
In order to settle the claims, Biovail says it has agreed to pay a penalty of $10 million “without admitting or denying the allegations”, but this does not include those relating to former chief executive Eugene Melnyk, former chief financial officer Brian Crombie, current CFO Kenneth Howling, and current vice president and controller John Miszuk, who are all still facing charges.

The Commission said it wants these four executives to pay civil fines, pay back any ill-gotten profits, and be banned from serving as officers or directors of any public company in future.