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Other Corporate Matters
12 Months Ended
Dec. 31, 2012
Other Corporate Matters [Abstract]  
Other Corporate Matters

Note 18 — Other Corporate Matters

On August 5, 2010, SciClone was contacted by the SEC and advised that the SEC has initiated a formal, non-public investigation of SciClone, and the SEC issued a subpoena to SciClone requesting a variety of documents and other information. The subpoena requests documents relating to a range of matters including, but not limited to, potential payments or transfers of anything of value to regulators and government-owned entities in China, bids or contracts with state or government-owned entities in China, any joint venture partner, intermediary or local agent of the Company in China, the Company's ethics and anti-corruption policies, training, and audits, and certain company financial and other disclosures. On August 6, 2010, the Company received a letter from the US Department of Justice (“DOJ”) indicating that the DOJ was investigating Foreign Corrupt Practices Act (“FCPA”) issues in the pharmaceutical industry generally, and that the DOJ had information about the Company’s practices suggesting possible violations. The Company will continue to cooperate fully with the SEC and DOJ in the conduct of their investigations.

In response to these matters, the Company’s Board appointed a Special Committee of independent directors (the “Special Committee”) to oversee the Company’s response to the government inquiry. Based on an initial review, the Special Committee decided to undertake an independent investigation as to matters reflected in and arising from the SEC and DOJ investigations including, but not limited to, certain sales and marketing matters in China, in order to evaluate whether any violation of the FCPA or other laws occurred.

During the investigation, the Special Committee instructed management to (i) evaluate and to expand the Company’s training of employees regarding understanding and compliance with laws including the FCPA and other anti-bribery laws and regulations, (ii) evaluate existing compliance and anti-bribery policies and guidelines and to prepare new, more detailed policies and guidelines for implementation after review by SciClone’s Board and/or committees of the Board, (iii) implement a pre-approval policy for certain expenses including payments for, or reimbursement of, travel and entertainment expenses, and sponsorships of certain third party events, and (iv) hire a Vice President of Compliance and Internal Audit to monitor and enforce compliance with the Company’s policies.

The Special Committee substantially concluded its investigation of those matters and on May 4 and 5, 2011 reported its findings and recommendations to the Board of Directors. The Special Committee has also reported those findings to the SEC and DOJ, and the Special Committee and the Company have continued to cooperate with the on-going SEC and DOJ investigations.

In the Company’s Form 10-Q for the period ended September 30, 2012, filed with the SEC on November 9, 2012, the Company disclosed, among other things, a non-cash impairment loss to fully write down the value of intangible assets recorded as part of the NovaMed acquisition; a remeasurement of the valuation of the contingent consideration expense recorded as part of the NovaMed acquisition; a significant increase in ZADAXIN channel inventory levels; and internal control issues primarily within the NovaMed organization that was concluded to be a material weakness in internal control over financial reporting. Following our disclosure of these items, the Company received a subpoena from the SEC requesting documents related to these and various other matters regarding the NovaMed acquisition and the Company’s operations in China. After review of the subpoena, and in order to respond to inquiries from the DOJ and SEC and to determine if any wrong-doing occurred, the Audit Committee determined to undertake an additional independent investigation as to additional matters including but not limited to matters related to our acquisition of NovaMed and FCPA matters.  

The Company is unable to predict what consequences that any investigation by any regulatory agency or by our Audit Committee or Special Committee may have on it. The Company’s cooperation with these investigations has resulted in substantial legal and accounting expenses, has diverted management’s attention from other business concerns and could harm its business. The ongoing investigations and any other regulatory investigations that might be initiated in the future, will result in similar substantial expenses, management diversion and harm to its business. If the Company fails to comply with regulations or to carry out controls on its Chinese or other foreign operations in a manner that satisfies all applicable laws, its business would be harmed. Any civil or criminal action commenced against us by a regulatory agency could result in administrative orders against the Company, the imposition of significant penalties and/or fines against it, and/or the imposition of civil or criminal sanctions against certain of its officers, directors and/or employees. The investigations, results of the investigations, or remedial actions the Company has taken or may take, if any, as a result of such investigations, may adversely affect its business in China. If the Company is subject to adverse findings resulting from the SEC and DOJ investigations, or from its own independent investigation, it could be required to pay damages or penalties or have other remedies imposed upon it. In addition, the Company will incur additional expenses related to remedial measures it is undertaking, and could incur fines or other penalties. The period of time necessary to resolve the investigations by the DOJ and the SEC is uncertain, and these matters could require significant management and financial resources which could otherwise be devoted to the operation of our business. The SEC’s and DOJ’s formal investigations are continuing.

The Company cannot predict what the outcome of those investigations will be, or the timing of any resolution. However, due to the significant uncertainty as to the outcome of the investigation, the Company is unable to reasonably estimate the loss or range of loss that may be incurred. As of December 31, 2012, the Company has therefore not accrued a liability for the contingent loss related to the FCPA investigation. Any fines or penalties that may be imposed, or other losses that may be realized related to the investigations, could materially impact the Company’s financial statements. The Company will continue to reassess the potential liability related to the investigations and adjust its estimates accordingly in future periods.

Following the Company’s announcement of these investigations, purported class actions naming SciClone and certain of its officers as defendants were filed and derivate lawsuits purportedly on behalf of the Company were filed naming certain of its officers and directors as defendants. On January 13, 2011, the derivative lawsuits were consolidated into a single action (“the Consolidated Derivative Action”). On October 3, 2011, the parties to the Consolidated Action reached an agreement to settle the lawsuit. On December 13, 2011, the Court granted final approval of the settlement, including the payment of approximately $2.5 million in attorney’s fees, and entered a final judgment dismissing all claims. The settlement provides for the actions against the defendants to be dismissed with prejudice and for the release of certain known or unknown claims that have been or could have been brought later in court arising out of the same allegations. The Company agreed to adopt certain corporate governance measures, to be in effect for at least three years, and agreed to the payment of approximately $2.5 million in attorney’s fees to counsel for the plaintiffs, with $2.5 million paid by SciClone’s insurers under its director and officer liability policy. 

            On March 11, 2013, Adam Crum filed a derivative lawsuit, purportedly in the name of SciClone, against Friedhelm Blobel, Gary Titus, Jon Saxe, Peter Barrett, Richard Hawkins, Gregg Lapointe and Ira Lawrence in California Superior Court, San Mateo County, captioned Crum v. Blobel, et al, Case No. CIV520331. The lawsuit alleges, based on the restatement, that the board and management breached their fiduciary duties to the company by not exercising oversight in such a way that they allowed the company to file financial statements that were materially inaccurate. Plaintiff asserts claims for breach of fiduciary duty, abuse of control and mismanagement. Plaintiff seeks, among other things, injunctive relief, disgorgement, undisclosed damages and attorneys’ fees and costs. The Company believes the claims lack merit and will vigorously defend against them.