- The Washington Times - Wednesday, August 4, 2004


Drug giant Bristol-Myers Squibb Co. is paying $150 million to settle federal regulators’ charges that it manipulated its inventory of medicines in a fraudulent scheme to inflate earnings and meet Wall Street targets, the Securities and Exchange Commission announced yesterday.

Bristol-Myers agreed in its settlement with the SEC to pay a $100 million civil fine and an additional $50 million, both of which will go into a fund for shareholders — who recently won $300 million from the company in a class-action lawsuit. Bristol-Myers neither admitted nor denied wrongdoing in the accord but did agree to abide by a permanent injunction against future violations.

It was one of the largest SEC penalties in recent years for reputed accounting violations against a viable company that continues to operate. The $150 million Bristol-Myers is paying dwarfs the $10 million fine levied on Xerox Corp. in 2002, which was the largest ever at the time, to resolve charges of accounting fraud.

New York-based Bristol-Myers faces a related criminal investigation by the Justice Department.

The company’s largest division, the U.S. Medicines Group, has headquarters in New Jersey. The SEC sued Bristol-Myers in federal court in Newark, N.J., claiming that the company sold excessive quantities of drugs to wholesalers and improperly booked revenue from $1.5 billion of those sales to its two biggest wholesalers.

The maker of Excedrin, Plavix and Pravachol disclosed in March 2003 that it had overstated revenue for 1999 to 2001 by $2.5 billion as a result of the discounts to wholesalers. Ranked No. 92 on the Fortune 500 list, Bristol-Myers had revenue of $20.7 billion last year.

Bristol-Myers covered the wholesalers’ carrying costs and guaranteed them a return on investment until they sold the products, the SEC said in the lawsuit. In booking the $1.5 billion in revenue at the point of shipment, the company violated generally accepted accounting principles, the regulators said.

They also accused Bristol-Myers of using so-called “cookie-jar” reserves in a drive to meet its internal sales and earnings targets as well as Wall Street analysts’ earnings forecasts. The SEC maintains that the use of such reserves — overstating income in some quarters and understating it in others — gives investors an inaccurate picture of a company’s financial performance.

Bristol-Myers also agreed in the settlement to appoint an independent adviser to monitor its accounting practices, financial reporting and internal controls.

“Bristol-Myers’ earnings-management scheme distorted the true performance of the company and its medicines business on a massive scale and caused significant harm to the company” and its shareholders, SEC enforcement director Stephen Cutler said in a statement. “As our investigation continues, we will be focusing on, among other things, those individuals responsible for the company’s failures.”

The SEC, the Justice Department and the U.S. Attorney’s Office in New Jersey have been investigating a Bristol-Myers program that offered wholesalers huge discounts to buy more prescription medicines than they could sell.

Bristol-Myers shares rose yesterday 15 cents to $23.29 on the New York Stock Exchange.

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