Bausch Health (FKA Valeant Pharmaceuticals) Agrees to $45 Million SEC Settlement

Earlier this year, the United States Securities and Exchange Commission (SEC) announced a settlement with Bausch Health (formerly known as Valeant Pharmaceuticals) to settle charges that Bausch engaged in improper revenue recognition and misleading disclosures in their SEC filings and earnings presentations. In addition to the company settlement, three former high-level executives also agreed to pay penalties to settle allegations against them.

According to the SEC, when Valeant announced certain financial measures, it misstated revenue transactions and included erroneous revenue allocations. By way of example, for five consecutive quarters, former CEO J. Michael Pearson, former CFO Howard B. Schiller, and former controller Tanya R. Carro, touted double-digit same store organic growth, a non-GAAP financial measure that represented growth rates for businesses owned for one year or more. Much of that growth came from sales to Philidor, a mail order pharmacy established and funded (at least in part) by Valeant. The SEC found that Valeant improperly recognized revenue relating to Philidor sales and did not disclose its unique relationship with – or risks related to – Philidor in any SEC filings, earnings, or investor presentations. In October 2015, Valeant cut ties with Philidor and restated its 2014 financial statements in April 2016, reducing the revenue that was improperly recognized.

The SEC also found that Valeant did not disclose the material impact of certain revenue received from drug wholesalers following a 500% price increase of a single drug acquired by Valeant in April 2015, Glumetza. Valeant erroneously attributed that income to more than 100 unrelated products and did not record any of the income as attributable to the correct drug. In April 2016 Pearson admitted that Valeant made mistakes in pricing its medicines and apologized to lawmakers for the errors.

Without admitting or denying the SEC’s findings, all four respondents (including Valeant) consented to orders finding that they violated antifraud provisions of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 and, with the exception of Schiller, Rule 100(b) of Regulation G. Valeant also consented to an order that finds reporting, books and records, and internal accounting controls violations, and the individual respondents consented to orders finding that they caused some or all of these violations. Pearson and Schiller agreed to pay civil penalties of $250,000 and $100,000 respectively, and to reimburse Valeant $450,000 and $110,000 respectively, representing a portion of their incentive compensation, pursuant to Section 304 of the Sarbanes-Oxley Act. Carro agreed to pay a $75,000 penalty and to be suspended from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies. Carro may apply for reinstatement after one year.

Bausch released a statement regarding the resolution saying, “We are pleased to have resolved this investigation with the SEC and to put this legacy matter behind us. Bausch Health cooperated closely with the SEC during its investigation, and we appreciate that the SEC acknowledged the significant remedial actions of our current leadership team and Board of Directors in the settlement agreement,” said Joseph C. Papa, chairman and CEO, Bausch Health. “Resolving this investigation is an important step in the ongoing transformation of Bausch Health.”