The Securities and Exchange Commission today announced that it has obtained final judgments that will require a former privately held dermatology products manufacturer and its former chairman and CEO to pay $37 million for the benefit of shareholders whom they defrauded through share buybacks that were improperly undervalued.
According to the SEC’s complaint, defendants Stiefel Laboratories, which at the time of the misconduct was the world’s largest private manufacturer of dermatology products, and Charles Stiefel defrauded shareholders, who were mostly company employees, by having Stiefel Laboratories buy back their stock at severely undervalued prices. The SEC alleged that Stiefel Laboratories and Charles Stiefel used artificially low valuations for stock buybacks and failed to disclose information that would have alerted employee shareholders their stock was worth much more than the price the company paid them. For example, according to the complaint, the company failed to disclose negotiations for the sale of the company that ultimately resulted in GlaxoSmithKline PLC purchasing Stiefel Laboratories for a share price more than four times higher than the share price the company paid to employee shareholders.
The U.S. District Court for the Southern District of Florida entered final consent judgments against Stiefel Laboratories and Charles Stiefel and approved a Fair Fund that will allow the SEC to distribute all disgorgement, prejudgment interest, and civil penalty payments to be received from both Defendants, totaling $37 million, to defrauded shareholders. Specifically, pursuant to the final judgments, without admitting or denying the allegations in the SEC’s complaint, Stiefel Laboratories was ordered to pay disgorgement of $23,000,000, prejudgment interest of $2,210,000, and a civil penalty of $1,300,000, and Charles Stiefel was ordered pay disgorgement of $9,300,000, prejudgment interest of $930,000, and a civil penalty $260,000. Charles Stiefel was also enjoined from violating Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934.
The SEC’s investigation was conducted by Drew Panahi, and was supervised by Thierry Desmet and Glenn Gordon. The SEC’s litigation was led by Christopher E. Martin, Robert Levenson, Alise Johnson, James Carlson, and Barbara Viniegra and supervised by Andrew Schiff.