U.S. securities regulators charged a unit of pharmaceutical giant GlaxoSmithKline and its former chief executive and chairman with defrauding employees in the company's stock plan by buying back their stock at undervalued prices.
In a civil suit filed in Southern District of Florida federal court, the Securities and Exchange Commission alleged that Stiefel Laboratories, a dermatology products manufacturer, used low valuations for stock buybacks prior to being purchased by GlaxoSmithKline two years ago.
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The SEC charged the company used low stock valuations for buybacks from November 2006 through April 2009, and it omitted key details that would have alerted employees that the stock was actually worth more. The SEC says that the information instead was confined to then-CEO Charles Stiefel, certain members of his family and some members of senior management.
The SEC said that in one instance, Stiefel Labs bought more than 750 shares of company stock from shareholders between November 2006 and April 2007 at $13,012 per share.
The SEC alleges that Charles Stiefel knew that five private equity firms had submitted offers to buy preferred stock in November 2006 that were based on equity valuations that were between 50 and 200 percent higher than the valuation that was later used for stock buybacks.
"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 Bustillo, director of the SEC's Miami regional office.
The SEC is seeking financial penalties against Stiefel Labs and Charles Stiefel.
A GlaxoSmithKline spokesman said: "Stiefel denies that it or Charlie Stiefel acted improperly or did anything to violate the securities laws. Stiefel intends to vigorously defend itself against the SEC's complaint." (Reporting by Sarah N. Lynch; Editing by Tim Dobbyn)