SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18330 / September 9, 2003
SECURITIES AND EXCHANGE COMMISSION v. SCHERING-PLOUGH CORPORATION, Case No. 1:03CV01880 (D.D.C.) (CKK)
SEC FILES SETTLED REGULATION FD CHARGES AGAINST SCHERING-PLOUGH CORPORATION AND ITS FORMER CHIEF EXECUTIVE
Company Agrees to Pay $1 Million Penalty, Former Executive Agrees to Pay $50,000 Penalty, and Both Agree to Commission Cease-and-Desist Order
On September 9, 2003, the Securities and Exchange Commission filed two settled enforcement proceedings charging Schering-Plough Corporation, a pharmaceutical company headquartered in Kenilworth, New Jersey, with violating the disclosure requirements of Regulation FD and Section 13(a) of the Securities Exchange Act of 1934. First, the Commission filed a lawsuit in the United States District Court for the District of Columbia charging Schering with violating Regulation FD and Section 13(a) and seeking a civil monetary penalty. Second, the Commission issued an administrative order finding that Schering violated the same provisions, and that the company's former chairman and chief executive officer, Richard J. Kogan, was a cause of Schering's violations. In the Matter of Schering-Plough Corporation and Richard J. Kogan, Admin. Proc. No. 3-11249, Exchange Act Rel. No. 34-48461 (September 9, 2003). Without admitting or denying the Commission's allegations and findings, Schering consented to the entry of a final judgment in the federal lawsuit that would require it to pay a $1 million civil penalty, Kogan agreed to pay $50,000 as a civil penalty in the administrative proceeding, and both parties agreed to entry of the Commission's cease-and-desist order.
In both its federal court complaint and its cease-and-desist order, the Commission charged that, during the week of September 30, 2002, Kogan and Schering's senior vice president of investor relations met privately in Boston with analysts and portfolio managers of four institutional investors (Wellington Management Company, Massachusetts Financial Services Company, Fidelity Management & Research Company, and Putnam Investments), three of which (Wellington, Fidelity, and Putnam) were among Schering's largest investors. The Commission further charged that, at each of these meetings, through a combination of spoken language, tone, emphasis, and demeanor, Kogan disclosed negative and material, nonpublic information regarding Schering's earnings prospects, including that analysts' earnings estimates for Schering's 2002 third-quarter were too high, and that Schering's earnings in 2003 would significantly decline. According to the Commission, immediately after the meetings, analysts at Fidelity and Putnam downgraded their ratings on Schering, and portfolio managers at those firms and at Wellington heavily sold Schering stock. Fidelity and Putnam each sold more than 10 million shares of Schering stock over a three-day period following the meetings, accounting for more than 30 percent of the overall market for that period. The price of Schering's stock declined during this period by more than 17 percent, from $21.32 to $17.64 per share, on approximately four times normal volume.
The Commission further charged that, on October 3, 2002, in the midst of this sell-off, Kogan held a previously scheduled private meeting with approximately 25 analysts and portfolio managers at Schering's New Jersey headquarters, during which he said, among other things, that Schering's 2003 earnings would be "terrible." Late that evening, Schering issued a press release providing earnings guidance for 2002 and 2003 that was materially below analysts' consensus estimates and, with regard to the full 2002 fiscal year, materially below the company's own prior earnings guidance.
SEC Complaint in this matter