Litigation Release No. 22187 / December 12, 2011
Securities and Exchange Commission v. Stiefel Laboratories Inc. and Charles W. Stiefel , (UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA, CASE NO. 1:11-cv-24438, FILED DECEMBER 12, 2011)
On December 12, 2011, the Securities and Exchange Commission filed securities fraud charges against Stiefel Laboratories Inc. (at the time of its misconduct the world’s largest private manufacturer of dermatology products, and now a fully-owned subsidiary of GlaxoSmithKline PLC) and Charles Stiefel, its former chairman and CEO, alleging they defrauded shareholders by buying back their stock at severely undervalued stock prices from November 2006 to April 2009.
The SEC alleges that in each of those years Stiefel Labs and Charles Stiefel used low valuations for stock buybacks and omitted to disclose to the Company’s own employees important information that would have alerted them that their stock was worth much more (information that only certain members of the Stiefel family and senior management knew about).
The SEC’s complaint, filed in the Southern District of Florida, alleges that first, between November 2006 and April 2007, Stiefel Labs purchased more than 750 shares of Stiefel Labs stock from shareholders at $13,012 a share even though Charles Stiefel knew that five private equity firms had submitted offers to buy preferred stock in November 2006 based on equity valuations of Stiefel Labs that were more than 50% to 200% higher than the valuation later used for stock buybacks .
Second, the complaint alleges that between late July 2007 and June 2008, Stiefel Labs purchased more than 350 additional shares of Stiefel Labs stock from shareholders under the Company’s employee stock plan at $14,517 a share. It also bought more than 1,050 shares from shareholders outside the Plan at an even lower stock price. At the time of these buybacks, Charles Stiefel knew, not only about the November 2006 private equity valuations, but that a prominent private equity firm had bought preferred stock based on an equity valuation for Stiefel Labs that was more than 300% higher than that used for stock buybacks .
Third, the complaint alleges that between December 3, 2008 and April 1, 2009, Stiefel Labs purchased more than 800 shares of its stock from shareholders at $16,469 a share even though Charles Stiefel knew that equity valuation was low and misleading, in part because he was negotiating the sale of the Company. Indeed, b eginning in late November 2008, Stiefel Labs decided to seek acquisition bids from several pharmaceutical companies. On January 26, 2009, Glaxo expressed interest in a Stiefel Labs acquisition and signed a confidentiality agreement on January 28, 2009. As late as March 16, 2009, Charles Stiefel ordered that the ongoing negotiations not be disclosed to employees and Stiefel Labs misled shareholders to believe the Company would remain family-owned. On April 20, 2009, Stiefel Labs announced that Glaxo would acquire the Company for a value that amounted to more than $68,000 per share (more than 300% higher than the $16,469 Stiefel Labs paid to buy back shares from its shareholders).
As a result of their violations of the federal securities laws Stiefel Labs and Charles Stiefel benefitted greatly and shareholders lost more than $110 million by selling their stock to Stiefel Labs based on the misleading valuations Stiefel Labs and Charles Stiefel had provided them.
The SEC’s complaint charges Stiefel Labs with violating and Charles Stiefel with violating and aiding and abetting Stiefel Labs’ violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks a final judgment permanently enjoining the defendants from future violations of these provisions of the federal securities laws and ordering them to disgorge their ill-gotten gains plus prejudgment interest and pay financial penalties, and also seeks an officer and director bar against Charles Stiefel.