WASHINGTON — Bristol-Myers Squibb Co. is paying $150 million to settle a major alleged accounting fraud as federal regulators accused the company Wednesday of manipulating its inventory of drugs to inflate earnings and meet Wall Street targets.
The pharmaceutical giant, which also recently settled a lawsuit by shareholders for $300 million, still faces a criminal investigation by the Justice Department.
In its settlement of the civil case with the Securities and Exchange Commission, Bristol-Myers agreed to pay a $100 million civil fine and an additional $50 million, both of which will go into a fund for shareholders. Bristol-Myers neither admitted nor denied wrongdoing in the accord but did agree to abide by a permanent injunction against future violations.
It is one of the largest SEC penalties in recent years for alleged accounting violations against a company that continues to operate. The $150 million Bristol-Myers is paying dwarfs the $10 million fine levied on Xerox Corp. in 2002, which was the largest ever at the time, to resolve allegations of accounting fraud.
"It does get the issues behind the company," said David Moskowitz, an analyst at investment firm Friedman Billings Ramsey in Arlington, Va. He noted the market's muted reaction to news of the SEC sanctions.
The criminal probe is "a remaining risk," Moskowitz acknowledged, but he said that if there is a penalty, "many investors feel it will be a manageable amount of fines."
The maker of Excedrin, Plavix and Pravachol disclosed in March 2003 that it had overstated revenue for 1999-2001 by $2.5 billion as a result of its having given wholesalers deep discounts to buy more prescription medicines than they could sell. Ranked No. 92 on the Fortune 500 list, Bristol-Myers had revenue of $20.7 billion last year.
Bristol-Myers is based in New York but its largest division, the U.S. Medicines Group, is headquartered in New Jersey.
The SEC sued Bristol-Myers in federal court in Newark, N.J., alleging that the company sold excessive quantities of drugs to wholesalers and improperly booked revenue from $1.5 billion of those sales to its two biggest wholesalers.
Bristol-Myers covered the wholesalers' carrying costs and guaranteed them a return on investment until they sold the products, the SEC said in the suit. In booking the $1.5 billion in revenue at the point of shipment, the company violated generally accepted accounting principles, the regulators said.
They also accused Bristol-Myers of using so-called "cookie-jar" reserves in a drive to meet its internal sales and earnings targets as well as Wall Street analysts' earnings forecasts. The SEC maintains that the practice — setting aside artificially large cash reserves to reduce revenues, with the idea of reversing that procedure to bolster revenues in less profitable times — gives investors an inaccurate picture of a company's financial performance.
Bristol-Myers also agreed in the settlement to appoint an independent adviser to monitor its accounting practices, financial reporting and internal controls.
"Bristol-Myers' earnings-management scheme distorted the true performance of the company and its medicines business on a massive scale and caused significant harm to the company" and its shareholders, SEC enforcement director Stephen Cutler said in a statement. "As our investigation continues we will be focusing on, among other things, those individuals responsible for the company's failures."
Some industry experts have questioned whether key Bristol-Myers managers benefited financially through bigger bonuses based on company sales.
The SEC, the Justice Department and the U.S. Attorney's Office in New Jersey have been investigating a Bristol-Myers program that offered wholesalers huge discounts to buy more prescription medicines than they could sell. A federal grand jury convened in Newark early this year to pursue a criminal investigation.
The company said Wednesday that it continues to cooperate with that inquiry.
Regarding the settlement with the SEC, Bristol-Myers said in a statement that it is "pleased to have resolved this matter."
"The company has implemented a series of internal controls and procedures designed to ensure that its financial reporting processes meet the highest standards of integrity and professionalism," it said.