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SEC Charges GlaxoSmithKline Subsidiary and Former CEO With Defrauding Employees in Stock Plan


Washington, D.C., Dec. 12, 2011 – The Securities and Exchange Commission today charged a subsidiary of pharmaceutical company GlaxoSmithKline and the subsidiary’s former chairman and CEO with defrauding employees and other shareholders in the company’s stock plan by buying back their stock at severely undervalued prices.

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The SEC alleges that Stiefel Laboratories Inc., which was a family-owned business located in Coral Gables, Fla., prior to being purchased by GlaxoSmithKline two years ago, used low valuations for stock buybacks from November 2006 to April 2009. Stiefel Labs omitted key information that would have alerted employees that their stock was actually worth much more. Instead, the information was confined to then-CEO Charles Stiefel and certain members of his family as well as some senior management. At the time, Stiefel Labs was the world’s largest private manufacturer of dermatology products.

“Stiefel Labs and Charles Stiefel profited at the expense of their employee shareholders who lost more than $110 million by selling their stock based on the misleading valuations they were provided,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “Private companies and their officers must understand that they are not immune from the federal securities laws, which protect all shareholders regardless of whether they bought stock in the open market or earned shares through a company’s stock plan.”

According to the SEC’s complaint filed in U.S. District Court for the Southern District of Florida, Stiefel Labs purchased more than 750 shares of company stock from shareholders between November 2006 and April 2007 at a price of $13,012 per share. 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 approximately 50 to 200 percent higher than the valuation later used for stock buybacks.

The SEC alleges that between late July 2007 and June 2008, Stiefel Labs purchased more than 350 additional shares of company stock from shareholders under the company’s employee stock plan at $14,517 per share. It also bought more than 1,050 shares from shareholders outside the plan at even lower stock prices. 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 percent higher than that used for stock buybacks.

The SEC’s complaint further alleges that between Dec. 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. Beginning in late November 2008, Stiefel Labs decided to seek acquisition bids from several pharmaceutical companies. On Jan. 26, 2009, GlaxoSmithKline expressed interest in a Stiefel Labs acquisition and signed a confidentiality agreement two days later. As late as March 16, 2009, Charles Stiefel ordered that the ongoing negotiations not be disclosed to employees, and he misled shareholders to believe the company would remain family-owned. On April 20, 2009, Stiefel Labs announced that GlaxoSmithKline would acquire the company for a value that amounted to more than $68,000 per share. This price was more than 300 percent higher than the per share price that Stiefel Labs had been paying to buy back shares from its shareholders.

The SEC’s complaint alleges Stiefel Labs violated and Charles Stiefel violated and aided and abetted Stiefel Labs’ violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC’s complaint seeks permanent injunctive relief, financial penalties, and the disgorgement of ill-gotten gains with prejudgment interest against both defendants, and an officer and director bar against Charles Stiefel.

The SEC’s investigation was conducted by attorney Drew D. Panahi and accountant Kathleen Strandell in the SEC’s Miami Regional Office under the supervision of Thierry Olivier Desmet. Christopher E. Martin of the Miami Regional Office will be litigating the SEC’s case.

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For more information about this enforcement action, contact:

Eric I. Bustillo, Regional Director
Glenn S. Gordon, Associate Regional Director
Thierry Olivier Desmet, Assistant Regional Director
Christopher E. Martin, Senior Trial Counsel
SEC’s Miami Regional Office
(305) 982-6300



Modified: 12/12/2011