GSK Subsidiary Charged With Fraud
A GlaxoSmithKline subsidiary Stiefel Laboratories has been been charged by the US Securities and Exchange commission with defrauding shareholders out of more than 100 million dollars. Formed in 2000, GlaxoSmithKline is a global pharmaceutical and health care company and is third in the industry behind Johnson and Johnson and Pfizer. The company employees more than 90,000 people worldwide. GlaxoSmithKline acquired Stiefel Laboroties in 2009 for the price tag of $2.9 billion.
The news of the indictment against CEO Charles Stiefel and Stiefel Laborities comes as the SEC continues to up its effort to crack down on insider trading and other corporate crimes. Earlier this year, hedge fund manager and Galleon Group founder Raj Rajaratnam was accused of an insider trading scheme worth $63 million. This was just one of many in the past few years. Investigators have been aided by new software that is able to calibrate patterns from a vast database of financial information. The SEC uses such technology to see if any suspicious trading activity transpires before major mergers, company announcements, or huge share purchases.
In the case of Stiefel, FEDs allege the crime reared on deliberately mis-valued stock and deceitful business practices. When GlaxoSmithKline bought Stiefel Labs in 2009, the family-owned company was the largest private dermatology manufacturer in the world. Mr. Stiefel had recently bought 800 shares valued at $16,494 a piece. After it was acquired by GSK, these same shares were honored at $68,000 a share, gaining 300% profitability. This was just the first in a series of similar transactions during that time frame. In other words, between 2006 and 2009 CEO Charles Stiefel bought back shares at prices that undervalued the stock and failed to alert shareholders of the higher potential value. He also directly lied to shareholders by telling them that the company would remain family-owned while actively leveraging the company for sale to GSK
The SEC plans to retrieve the money that was defrauded, a process known as disgorgement, and prevent Charles Stiefel from ever serving as a corporate officer. According to a brief statement, Stiefel will contest the charges. The SEC seems poised to prosecute to the full extent of the law, saying “Private companies and their officers must understand that they are not immune from the federal securities laws…” With the recent stigma attached to corporate corruption and the public outrage over high-finance malfeasance, it’s likely this case will not be taken lightly.