Biovail execs face SEC charges; company settles

By Scott Anderson and Rachelle Younglai

TORONTO/WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission said on Monday that Canada's Biovail Corp (BVF.TO) will pay $10 million to settle a probe into fraudulent accounting, but the drugmaker's founder, Eugene Melnyk, and three other current and former executives still face charges.

In addition, Canada's major securities regulator, the Ontario Securities Commission, said it has scheduled a hearing for April 22 on issues concerning Biovail.

Melnyk, Biovail's former chief executive and chairman, who is also its largest shareholder, said the "vast majority" of the allegations in the case do not pertain to him.

"I intend to vigorously contest the absolutely false allegations of the SEC and OSC and am confident that I will prevail once all the facts are heard," he said in a statement.

Melnyk is also owner of the Ottawa Senators of the National Hockey League.

In settling with the SEC, Biovail, Canada's largest publicly traded pharmaceutical company, did not admit to any wrongdoing and agreed to have an independent consultant examine its accounting and related functions.

Still facing SEC charges are former Chief Financial Officer Brian Crombie, current Controller John Miszuk and current CFO Kenneth Howling.

"This was the CEO, CFO, the controller and the current CFO," said Jacob Frenkel, a former SEC enforcement official and criminal prosecutor who now handles white-collar criminal matters.

"This is a case where the buck stops with everyone responsible. Under those circumstances it was difficult not to charge the company."

None of the charges against Melnyk or the other three have been proved in court.

Calls to lawyers for the current and former executives were not immediately returned.

The SEC investigation includes an incident in 2003 when Biovail attributed a failure to meet its third quarter forecast to a trucking accident involving a shipment of the company's Wellbutrin drug.

HID LOSSES

The SEC said current and former senior Biovail executives were obsessed with meeting quarterly and annual targets, and they overstated earnings and hid losses to deceive investors.

"When it ultimately became impossible to continue concealing the company's inability to meet its own earnings guidance, Biovail actively misled investors and analysts about the reasons for the company's poor performance," the SEC said.