SEC Charges Biovail, Execs With Fraud

The U.S. Securities and Exchange Commission said Monday that it charged Canadian drugmaker BiovailBVF and four current and former top executives with a series of fraudulent accounting schemes and investor deception.

Biovail agreed to settle the SEC charges and pay a $10 million penalty, though it did not admit guilt.

The four executives -- former chairman and CEO Eugene Melnyk, former Chief Financial Officer Brian Crombie, current Controller John Miszuk and current Chief Financial Officer Kenneth Howling -- still face charges. Biovail said Monday that Miszuk and Howling are being re-assigned to non-officer positions within the company.

The SEC accused Biovail of engaging in a number of schemes to deceive investors and inflate earnings to meet analysts' targets.

Among the fraudulent moves, the SEC's complaint said, was an October 2003 incident where Biovail falsely attributed its failure to meet its third-quarter earnings guidance to a truck accident involving a shipment of its antidepressant Wellbutrin XL.

At that time, Biovail claimed that the truck accident cost the company $10 million to $20 million in revenue for the third quarter 2003. But a subsequent investigation by TheStreet.com found that the loss was closer to $2 million to $4 million, and that Biovail was using the truck accident as a convenient excuse to gloss over a bad earnings miss.

According to Monday's SEC complaint, "Biovail intentionally misstated both the effect of the accident on Biovail's third quarter earnings as well as the value of the product involved in the truck accident. The accident, in fact had no effect on third quarter earnings."

The SEC says the value of the Wellbutrin XL in the truck was approximately $5 million.

Biovail shares were down 35 cents, or 3.1%, to $11.13 in recent trading.