Valeant Pharmaceuticals Intl Inc (NYSE:VRX) stock is plummeting on rumors that U.S. prosecutors are building a fraud case against two former company executives.
Valeant stock plunged 12.02% after news of the investigation went public. Former CEO J. Michael Pearson and former CFO Howard Schilling could face charges within weeks. (Source: “Valeant stock plunges on report of criminal probe of former top executives,” Financial Post, October 31, 2016.)
The investigation is examining possible accounting fraud resulting from Valeant’s hidden ties to Philidor Rx Services LLC, a specialty pharmacy company that Valeant secretly controlled. Bloomberg reported that other executives beyond these two could also face charges.
The case revolves around Valeant registering Philidor’s purchases as revenue when Valeant, in fact, secretly controlled the company. This led to a restating of its earnings for 2014 and 2015. This also led to Schiller stepping down as CFO, although he disputes the claims of wrongdoing.
VRX stock has been absolutely collapsing since 2015, falling from $319.13 to $23.94. The investigation by federal prosecutors in Manhattan and agents at the Federal Bureau of Investigation (FBI) in New York is yet another blow to the already faltering company.
“We have been fully cooperating with the authorities throughout the investigation, and we are in frequent contact and continue to cooperate with the U.S. Attorney’s Office,” wrote Valeant in a statement. “We do not comment on rumors about investigations, and cannot comment on or speculate about the possible course of any ongoing investigation.” (Source: “Valeant Pharmaceutical Comments On Press Reports,” CNW, October 31, 2016.)
VRX stock was once coveted on Wall Street, but Valeant has faced scrutiny for its practice of acquiring drugs and then subsequently spiking prices. This investigation is coming at a time when pharmaceutical company price hiking has rarely—if ever—faced more scrutiny.
And if one investigation into possible wrongdoing wasn’t enough, U.S. prosecutors in Boston and Philadelphia are also said to be conducting separate investigations of the Laval, Quebec-based company.