Biovail 3 Month TSX chart

Biovail Corp., Canada's largest publicly traded drug company, has agreed to pay a $5-million fine plus costs of $1.5 million to settle allegations of improper accounting, misleading the public and making false statements to the Ontario Securities Commission.

It's believed to be the biggest penalty ever imposed on a company by the OSC.

Although the settlement was reached Wednesday, the penalties weren't made public until Friday.

Allegations are still hanging over Ottawa Senators owner Eugene Melnyk, Biovail's founder, largest shareholder and former chairman.

Under the original statement of allegations issued by the OSC last March, Canada's largest provincial securities regulator accused the company of failing to meet U.S. and Canadian accounting standards with its financial statements in 2001, 2002 and 2003.

Many of the infractions involved a "special purpose entity" called Pharmaceutical Technologies Corp., which the OSC contended was set up to take on $125 million worth of research-and-development expenses that would have otherwise been on Biovail's books.

Biovail acknowledged to the OSC that it misled the public in its financial filings. And it admitted making false statements to the OSC during the investigation.

Melnyk faces OSC

Also named in the same allegations, dated March 24, 2008, were four men who were Biovail senior executives.

The most prominent individual named in the allegations was Melnyk, who was chairman and at times chief executive during a key period of the company's development. The settlement is between the company and the regulator, and doesn't cover the four individuals.

Last May, Biovail's chief U.S. subsidiary agreed to pay $24.6 million US to settle U.S. criminal allegations related to the launch of the Cardizem LA blood-pressure drug in 2003, part of the Canadian drug company's push to expand in the American market.

Subsequently, the company's management — no longer headed by Melnyk — announced just before Christmas the resolution of all litigation with Jerry Treppel, formerly an analyst with Banc of America Securities who had issued a "sell" recommendation on Biovail stock in April 2002 and was fired a month later.

In 2007, Biovail settled with another former Banc of America Securities analyst, David Maris, who had written a scathing report on the company's accounting practices in 2003.

Melnyk, who is no longer a member of its board of directors or management, tried unsuccessfully last year to install an alternative board of directors.

The commission is continuing its case against Melnyk and the other former executives. A hearing begins Feb 2.