U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19343 / August 22, 2005
Accounting and Auditing Enforcement
Release No. 2294 / August 22, 2005
Securities and Exchange Commission v. Frederick S. Schiff and Richard J. Lane, Civil Action No. 05-4132 (FSH) (D.N.J.) (Filed Aug. 22, 2005) (Hochberg, J.)
The Securities and Exchange Commission today announced the filing of a civil fraud action in the United States District Court for the District of New Jersey against Frederick S. Schiff ("Schiff") and Richard J. Lane ("Lane").
The Commission's Complaint alleges that Schiff and Lane participated in a fraudulent earnings management scheme by Bristol-Myers Squibb Company to deceive the investing public about the true performance, profitability and growth trends of the Company and its U.S. medicines business. The Complaint alleges that from the first quarter of 2000 through the fourth quarter of 2001, at Schiff and Lane's direction, Bristol-Myers stuffed its distribution channels with excessive amounts of its pharmaceutical products ahead of demand to meet the Company's internal earnings targets and the consensus estimate of Wall Street securities analysts, and improperly recognized revenue from $1.5 billion of such sales to its two largest wholesalers. According to the Commission's Complaint, when Bristol-Myers' results still fell short of its targets and the consensus estimate, at Schiff's direction, the Company used "cookie jar" reserves to further inflate its earnings. The Complaint also alleges that at Schiff's direction, and as a result of the channel-stuffing, Bristol-Myers also underaccrued for Medicaid and prime vendor rebate liabilities. As a result of its channel-stuffing and improper accounting measures, Bristol-Myers reported results that met or exceeded the consensus estimate every quarter during the scheme. The Complaint alleges that Schiff signed numerous periodic reports and registration statements in connection with a $5 billion securities offering in September 2001 that failed to disclose the scheme. Schiff and Lane also made misstatements in conference calls with securities analysts that concealed Bristol-Myers' channel-stuffing activities and the extraordinary buildup in excess wholesaler inventory.
The Commission's Complaint charges Schiff with violations of Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. The Complaint charges Lane with violations of Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rule 10b-5 thereunder, and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-13 thereunder. The Commission's Complaint also seeks the entry of orders of permanent injunction, disgorgement, civil penalties and officer and director bars against Schiff and Lane.
On August 4, 2004, Bristol-Myers settled the Commission's action against it by agreeing to pay $150 million dollars and perform numerous remedial undertakings, including the appointment of an independent adviser to review and monitor its accounting practices, financial reporting and internal controls.
SEC Complaint in this matter