Valeant draws more fire for tapping insiders to investigate fraud allegations

Industry watchers have a couple of problems with the ad hoc committee Valeant ($VRX) assembled to investigate claims that it used relationships with specialty pharmacies to inflate its top line. For one, all four members are on the company's board. For two, they all have an equity stake in the drugmaker. And no one's is as sizable as committee chairman Mason Morfit's.

Mason Morfit

Morfit--a former Valeant director who rejoined the company's board on Monday--is second-in-command at activist fund ValueAct Capital, which holds about 4.4% of the drugmaker's stock, The Wall Street Journal's MoneyBeat blog pointed out earlier this week. And as Bloomberg notes, he may be back to help whip the company into shape.

Amid subpoenas over pricing decisions and the "phantom sales" allegations from short seller Citron Research, Valeant's stock has taken a beating, losing more than half its value since this summer, the news service points out. Some analysts have said it's a good time to pick Valeant shares on the cheap, as enthusiast investor Bill Ackman says he has. But ValueAct can't do the same.

The fund, which has had reps on Valeant's board since at least 2007--when Morfit first joined--is subject to insider trading restrictions, Bloomberg reports. ValueAct likely won't be able to pick up Valeant shares until close to the end of this year.

Valeant CEO J. Michael Pearson

So with ValueAct unable to benefit from the low share prices, Morfit is coming back to help turn things around--and CEO J. Michael Pearson is confident he'll do just that. "Although Mason has not officially been a part of the Valeant Board for more than a year, I have continued to value his vision and guidance, and I believe his insights will be invaluable during this time," he said in a statement earlier this week.

Meanwhile, Valeant's critics haven't quieted down since the committee announcement. On Monday, U.S. Senator Claire McCaskill (D-MO) said in a letter to Pearson that she'd be probing both Valeant's drug-pricing policies as well as Citron's allegations.

"While I look forward to hearing more about the company's ad hoc committee, the fact that all four members of the committee are on the board makes it hard for me to believe that their inquiry will be independent or unbiased," she said, as quoted by Business Insider.

Aside from Morfit, the three other members of the committee are Norma Provencio--who owns a stake in Valeant worth about $13.2 million--and Robert Ingram and Colleen Goggins, each of whom own amounts worth $800,000, according to Moneybeat.

- get more from Bloomberg
- read the MoneyBeat post
- see McCaskill's comments from Business Insider

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