* Court says case against ex-CFO Schiff properly narrowed
* Defense pleased with ruling
* U.S. Attorney reviewing options
By Jonathan Stempel
NEW YORK, April 7 A former Bristol-Myers Squibb
Co (BMY.N) chief financial officer won a federal appeals court
ruling on Wednesday narrowing the criminal fraud case brought
against him by the U.S. Justice Department.
A unanimous three-judge panel of the U.S. Court of Appeals
in Philadelphia agreed upheld a lower court ruling that the
case against Frederick Schiff should be limited to whether he
made misstatements on investor conference calls.
It barred prosecutors from introducing evidence that Schiff
failed to tell investors about an alleged improper practice to
bolster revenue by giving financial incentives to wholesalers,
or to explain an April 2002 plunge in the New York-based
company's stock price after the scheme became known.
David Zornow, who represents Schiff and leads the
white-collar crime practice at Skadden, Arps, Slate, Meagher &
Flom LLP in New York, was pleased.
"We have felt from the beginning that this prosecution was
misguided and the case should never have been brought," he
said. "The case still can go to trial, but on a narrow basis.
All that's left now are allegations of affirmative
misrepresentation on a handful of analyst calls in 2001 and
2002 on the issue of wholesale inventory."
Rebekah Carmichael, a spokeswoman for U.S. Attorney Paul
Fishman in New Jersey, said, "We are reviewing the opinion and
considering our options."
Prosecutors had charged Schiff, now 62, failed to tell
investors that Bristol in 2000 and 2001 gave wholesalers tens
of millions of dollars of incentives each quarter to spur them
to buy more products they needed.
The practice, known as channel stuffing, allowed the
drugmaker to exaggerate revenue by $2 billion and meet its
earnings targets, helping to inflate its stock price, they
Bristol's market value dropped several billion dollars
after the practice came to light. In 2005, the company accepted
a two-year probation from the Justice Department in a so-called
deferred prosecution agreement, to avoid a possible trial.
U.S. District Judge Faith Hochberg in Newark, New Jersey
ruled in 2008 that prosecutors could not introduce expert
testimony about the stock price decline as evidence that
Schiff's alleged misstatements and omissions were material.
She also said prosecutors could not argue that Schiff made
material omissions in U.S. Securities and Exchange Commission
The appeals panel agreed.
"The government has engaged in a game of musical chairs
with their pursuit of changing legal theories" alleging
securities fraud, U.S. Circuit Judge Thomas Ambro wrote for the
panel. In the end the government's case "reaches too far," he
Schiff, a Manhattan resident, has not worked since his 2005
indictment, Zornow said.
Another defendant in the proceedings, former Bristol
worldwide medicines president Richard Lane, has had his case
separated from Schiff's.
Bristol's 2005 deferred prosecution agreement was arranged
by then-U.S. Attorney Christopher Christie, who is now New
The case is U.S. v. Schiff, U.S. Court of Appeals for the
3rd Circuit, Nos. 08-1903 and 08-1909.
(Reporting by Jonathan Stempel, editing by Leslie Gevirtz)