U.S. feds building accounting fraud case against Valeant, with former CEO, CFO at the center: Report

Valeant

U.S. prosecutors are reportedly building a fraud case against Valeant, and charges against the company--as well as its former execs--could be landing very, very soon.

Authorities are investigating potential accounting fraud charges associated with the Canadian drugmaker’s relationship to now-dead specialty pharmacy Philidor, Bloomberg reports. And they’re taking a close look at the actions of former skipper J. Michael Pearson and former CFO and interim CEO Howard Schiller, too.

Federal prosecutors in Manhattan and agents at the Federal Bureau of Investigation in New York have been probing the embattled pharma for at least a year, the sources say, and charges could be here within weeks. And it’s not just Pearson and Schiller who could face prosecution. Former Philidor executives could also be charged, they told the news service. Another possibility: The Department of Justice could settle with the company itself and take action against individuals later.

The ramifications of fraud charges, both potential and actual, could be more “wide ranging,” though, Wells Fargo analyst David Maris wrote in a note to clients. For one, “refinancing may be significantly more expensive or possibly unavailable,” which could pose a problem for the debt-laden drugmaker.

For Valeant’s part, it told Bloomberg that it was “in frequent contact and continue to cooperate” with U.S. authorities, noting that “Valeant takes these matters seriously and intends to uphold the highest standards of ethical conduct.”

Valeant’s once-secret relationship with Philidor came to light last October, when a short seller accused the drugmaker of leveraging the pharmacy for channel-stuffing. In the days and months that followed, Valeant revealed that it had purchased an option to acquire the company and that it had incorrectly put shipments to Philidor down in the books as revenue. After restating its financials to amend a $58 million blip, Valeant pointed the finger at Schiller for “improper conduct” that he denied.

Most of the headlines Valeant has made in 2016 have centered on its controversial pricing and reimbursement practices. U.S. prosecutors in Boston and Philadelphia are reportedly working on their own probes, a source told Bloomberg; the Boston investigation focuses on Valeant payments to charities that helped patients afford copayments for the company’s pricey drugs, and the Philadelphia case looks at the drugmaker’s billing of government healthcare programs.

But the feds aren’t the only ones who haven’t forgotten about the Philidor saga. Earlier this year, Valeant confirmed--in response to media inquiries--that it was under investigation by the U.S. Securities and Exchange Commission, and sources later told The Wall Street Journal that the subject of the probe was Valeant’s Philidor ties.

Meanwhile, shareholders aren’t exactly happy with the new revelation, and they sent shares--already massacred after the events of the past year-plus--down to their lowest depths since 2010. And they have good reason to be running for the exits, Maris figures.

“We strongly suggest investors consider the risks of potential sizable financial penalties and costly legal actions on a company with more than $30 billion of debt that has already sought debt waivers twice,” he wrote.

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