Did Stiefel undervalue employee shares before GSK buyout?

Was something rotten in Stiefel Laboratories' dealings with employee-shareholders before its sale to GlaxoSmithKline ($GSK)? The Securities and Exchange Commission believes so. The U.S. agency alleges that Stiefel family members, including former CEO Charles Stiefel, benefited when the company bought up private shares from employees at a fraction of the amount paid by outside buyers.

As The Wall Street Journal reports, the SEC claims in a civil lawsuit that current and former Stiefel employees were defrauded out of $110 million. Some current and former employees--including former CFO Richard Fried--have also sued, alleging that the Stiefel family's $1.6 billion in proceeds from the GSK sale were enriched by the company's cut-rate purchase of shares from workers.

The lawsuits point out the vast difference in prices offered to employees compared with those paid by investors buying stakes in the company. Blackstone Group bought a piece of Stiefel Labs in 2007 for $60,000 per share, a total of $500 million. GSK's deal for Stiefel, which closed in July 2009, valued employee shares at $68,131 apiece. From December 2008 to April 2009, the company bought back some 800 employee shares for $16,469 each, the SEC alleges. And each time the company bought employee shares, the family's percentage of the remainder grew.

Stiefel Labs and family members deny wrongdoing. In court documents, the WSJ notes, Stiefel says Blackstone's shares had restrictions that made comparing their price to the employees' share prices impossible. The company and Charles Stiefel have said that they did not intend to deceive and that Stiefel himself wasn't obligated to disclose the GSK deal's terms before it was announced.

- read the WSJ piece