Ex-Bristol Myers execs in deferred prosecution deal

* Pact will end criminal fraud case against former execs

* Defendants to pay combined $400,000 in settlement funds

* Agreement filed in U.S. District Court in New Jersey

NEW YORK, June 29 (Reuters) - Two former Bristol-Myers Squibb Co BMY.N executives have reached deals with U.S. prosecutors that will end their criminal fraud cases as long as they stay out of trouble, according to court papers made public on Tuesday.

The deferred prosecution agreements were reached with ex-Chief Financial Officer Frederick Schiff and former Worldwide Medicines unit president Richard Lane, who had been accused of artificially inflating the company’s profits.

Schiff will be required to pay $225,000 into a DOJ settlement fund, while Lane will pay $175,000, according to the agreements. They also will be barred from serving as a top officer of a public company for two years.

If the two men comply with the pacts and demonstrate good behavior, prosecutors will recommend in one year that the cases against them be dropped, according to the agreements filed in U.S. District Court in Newark, New Jersey.

Lawyers for the two men said they were pleased with the agreements and that the case never should have been brought.

“After seven years of investigation and litigation, this resolution contemplates the dismissal of all criminal charges,” said David Zornow, an attorney at law firm Skadden Arps Slate Meagher & Flom LLP who represents Schiff.

An attorney for Lane, Richard Strassberg, said “this deferred prosecution agreement is a tremendous vindication for Mr. Lane.”

The case surrounded allegations that Schiff and Lane were involved in a scheme to conceal from investors that wholesalers were given financial incentives to spur the purchase of more products than they needed -- a practice known as channel stuffing.

Prosecutors said the practice allowed Bristol-Myers to exaggerate revenue by $2 billion and meet profit targets, artificially inflating its stock price.

In 2005, Bristol-Myers accepted a two-year probation from the Justice Department in a deferred prosecution agreement to avoid a possible trial.

The case against Schiff had been significantly narrowed by an April ruling by the U.S. Court of Appeals for the Third Circuit.

Rebekah Carmichael, a spokeswoman for U.S. Attorney Paul Fishman in New Jersey, said that “in light of the Third Circuit’s ruling on various legal issues in this case, we determined that the interest of justice would be best served by deferring prosecution in this district.”

Bristol-Myers declined to comment on the case.

The case is U.S. v. Schiff and Lane, No. 06-406, U.S. District Court for the District of New Jersey.

Reporting by Martha Graybow; Editing by Phil Berlowitz