A former Bristol-Myers Squibb CFO got good news from an appeals court this week: The U.S. Third Circuit narrowed a securities fraud case against him, saying that prosecutors had misapplied securities law in their case and "engaged in a game of musical chairs with their pursuit of changing legal theories."
Frederick Schiff can't be held accountable for failing to correct misstatements from other BMS executives, the court ruled. Nor can he be punished for omissions from quarterly SEC filings, nor for failing to tell investors about financial incentives allegedly given to wholesalers to induce them to buy more BMS products than they needed. He can only be held responsible for any misstatements he may have made during investor conference calls.
Prosecutors had accused Schiff of failing to tell investors that Bristol gave wholesalers millions of dollars in incentives each quarter--back in 2000 and 2001--to induce them to buy more. Known as "channel stuffing," the practice helped BMS exaggerate its revenues by $2 billion and meet its earnings targets, prosecutors claimed. (In 2005 the company accepted a two-year probation from the Justice Department to avoid a possible trial, Reuters notes.) But the government's case "reaches too far," Judge Thomas Ambro writes in the opinion.
"We have felt from the beginning that this prosecution was misguided and the case should never have been brought," Schiff's attorney, David Zornow of Skadden, Arps, Slate, Meagher & Flom, tells Reuters. "The case still can go to trial, but on a narrow basis. All that's left now are allegations of affirmative misrepresentation on a handful of analyst calls."