When he sold his company Stiefel Laboratories to GlaxoSmithKline ($GSK) in 2009, Charles Stiefel appeared to be a lucky man. But now, roughly two years later, the Securities and Exchange Commission is accusing him of defrauding employees and other shareholders in the Coral Gables, FL-based company's stock plan by buying back their stock at severely undervalued prices.
According to the SEC, Stiefel neglected to tell his employees that their stock was actually worth much more, deciding instead to keep that information to himself, certain family members and some senior management. In fact, he might have cheated his employees out of more than $110 million, the SEC alleges.
For example, Stiefel Labs purchased more than 750 shares of company stock from shareholders between November 2006 and April 2007 at a price of $13,012 per share. According to the SEC, 5 private equity firms had submitted offers to buy preferred stock in November 2006 based on equity valuations of Stiefel Labs that were about 50% to 200% higher than the valuation later used for stock buybacks--something Stiefel himself knew. And there were similar instances of this behavior until 2009, when the company was purchased, the SEC alleges.
"Stiefel Labs and Charles Stiefel profited at the expense of their employee shareholders who lost more than $110 million by selling their stock based on the misleading valuations they were provided," says Eric Bustillo, director of the SEC's Miami regional office, in a statement. "Private companies and their officers must understand that they are not immune from the federal securities laws, which protect all shareholders regardless of whether they bought stock in the open market or earned shares through a company's stock plan."
The SEC is seeking a number of penalties, including "the disgorgement of ill-gotten gains."
A GSK spokesman denied that Stiefel and his unit had acted improperly or violated securities laws, The New York Times notes, adding that the company plans to defend itself against the charges. Lawyers for Stiefel, who also faces civil lawsuits from his ex-employees, didn't respond to requests for comment, the paper adds.