SEC Charges Salix Pharmaceuticals and Former CFO With Lying About Distribution Channel

The Securities and Exchange Commission today charged Salix Pharmaceuticals Ltd. and its former CFO with repeatedly misleading analysts and investors about the company’s future prospects. The former CFO, Adam Derbyshire, will pay more than $1 million to settle the charges. 

According to the SEC’s complaints, Salix and Derbyshire lied to analysts and investors during quarterly earnings calls by significantly understating the amount of Salix drugs that wholesaler customers held in inventory. Salix had engaged in a long-standing practice of flooding the distribution channel by using incentives to induce customers to purchase more products, creating a short-term revenue bump but excess supply that imperiled future sales. The complaints allege that Salix and Derbyshire also failed to disclose in SEC reports that the practice had impacted earnings and presented a significant risk to Salix investors. Salix is now a subsidiary of Bausch Health Companies, which was previously known as Valeant Pharmaceuticals International. The alleged misconduct occurred prior to Salix’s acquisition by Valeant.

“The settlement with Salix reflects the company’s self-report to the Commission and its significant cooperation with the investigation,” said David Frohlich, Assistant Director in the SEC’s Enforcement Division. “Salix’s proactive remediation included conducting an extensive internal investigation that led to Derbyshire’s resignation.”

To settle the charges, Salix, without admitting or denying the Commission's allegations, agreed to be enjoined from future violations of the antifraud and corporate reporting provisions of the federal securities laws. The proposed settlement is subject to district court approval.

Without admitting or denying the allegations in the Commission's complaint, Derbyshire agreed to a permanent injunction against violations of the antifraud provisions and from aiding and abetting violations of the corporate reporting provisions.  He also agreed to pay $558,534 in disgorgement and interest plus a penalty of $494,836, and to be barred for five years from serving as an officer or director of a public company. The proposed settlement is subject to court approval. Derbyshire separately agreed to be suspended from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies. The SEC's order would permit Derbyshire to apply for reinstatement after five years.

The SEC’s investigation was conducted by Michelle I. Bougdanos and Nicholas Margida with assistance from James Smith, Christian Schultz, and Matthew Scarlato.  The case was supervised by David Frohlich.