Two former Bristol-Myers Squibb Co. executives defrauded investors by improperly accounting for $1.5 billion in revenue in 2000 and 2001, the Securities and Exchange Commission said Monday.
Frederick Schiff, former chief financial officer for the No. 5 U.S. drug maker, and Richard Lane, former worldwide medicine group president, paid wholesalers to take on more inventory than they needed, helping the company inflate revenue and sales, the SEC said in a civil complaint filed in federal court for the District of New Jersey. When targets still weren’t met, they transferred funds out of improper reserves, the SEC said.
The buildup of excess inventory created “a material risk” to the company’s future sales and earnings, the SEC said. In March 2003, Bristol-Myers admitted that the improper accounting caused it to overstate net sales by $1.8 billion in 2000 and 2001 and inflate net earnings by $1.4 billion.
Investors lost millions of dollars, and Schiff and Lane profited from salary, bonuses, stock options and other benefits, the agency said.
“For two years, Schiff and Lane led the market to believe that Bristol-Myers was meeting its financial projections and market expectations, when in fact the company was making its numbers primarily through channel stuffing and manipulative accounting devices,” Merri Jo Gillette, head of the SEC’s Midwest regional office in Chicago, said in a statement.
Schiff, 56, of New York, and Lane, 53, of Doylestown, Pa., also lied to the company’s auditor, PricewaterhouseCoopers, the SEC said.
An attorney for Schiff did not return a call seeking comment. Lane’s attorney disputed the charges.
“The SEC’s civil claims against Richard Lane are simply a rehash of the meritless charges filed some months ago,” said his attorney, Richard Strassberg of law firm Goodwin Procter. “He did nothing wrong, he intends to fight these claims vociferously, and he’ll be vindicated at trial.”
Bristol-Myers spokesman Brian Henry declined to comment. The New York-based company agreed to pay $150 million in 2004 to settle with the SEC and appointed an independent advisor to review and monitor its accounting practices, financial reporting and internal controls.