Securities regulators in Ontario and the United States on Monday filed charges against pharmaceutical company Biovail Corp., its former chairman and CEO Eugene Melnyk and three other current and former executives.

Eugene Melnyk speaks at the Biovail annual and special meeting of shareholders in Toronto on May 16, 2007.
(Aaron Harris/Canadian Press)

The Ontario Securities Commission and the U.S. Securities and Exchange Commission accused the company and the executives of fraudulent accounting and making misleading statements.

Toronto-based Biovail has already settled the SEC's charges without admitting or denying the SEC's allegations and will pay a $10 million US penalty. The company also agreed to an examination of its accounting by an independent consultant.

Four current or former Biovail senior executives still face SEC charges: Melnyk; former chief financial officer Brian Crombie; current controller John Miszuk; and current CFO Kenneth G. Howling.

Biovail said Howling and Miszuk are being reassigned to different non-officer positions within the company. Adrian de Saldanha, Biovail’s vice-president of finance and treasurer, has been appointed interim CFO.

The OSC alleged that Biovail failed to account on its 2001 and 2002 financial statements for a special-purpose entity it created called Pharmaceutical Technologies Corp.

The regulator also said the company improperly booked revenue on its Wellbutrin XL in June 2003, and failed to disclose a foreign-exchange error on its 2003 financial statements.

The OSC also claimed the company made misleading comments to investors, analysts and the media regarding its 2003 report of a third-quarter earnings miss.

A first appearance on the charges brought by the OSC is set for April 22.

SEC allegations

The SEC said that Biovail and some of its executives schemed to deceive investors and analysts by falsely attributing nearly half of Biovail's third-quarter 2003 earnings miss to a truck accident involving a shipment of one of Biovail's products.

The SEC charged that the truck accident had no effect on the company's quarterly earnings.

"We allege that Biovail and senior executives engaged in a pattern of systemic, chronic fraud that impacted its public filings of quarterly and annual reports over the course of four years," said Mark Schonfeld, director of the SEC's New York office.

"In an effort to conceal the fraud, Biovail's senior officers intentionally misled the company's auditors and the investing public, showing their complete disregard for their responsibilities to shareholders," Schonfeld said in a release.

Melnyk, who is now the owner of the Ottawa Senators hockey team, said he is "disappointed" by the actions launched by the SEC and the OSC.

"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," Melnyk said.

Melnyk recently made public statements about wanting a new slate of directors for Biovail, saying he was disappointed with current management.

Shares of Biovail rose 26 cents, or more than two per cent, to end at $12.04 on the TSX.