A dermatology product manufacturer purchased by pharmaceutical company GlaxoSmithKline in 2009 and its former chief executive are being sued by federal regulators for allegedly defrauding employee shareholders of more than $110 million.
In a complaint filed in the U.S. District Court for the Southern District of Florida, the U.S. Securities and Exchange Commission said that Stiefel Laboratories, formerly a family-owned business located in Coral Gables, Fla., and the company’s then-CEO, Charles Stiefel, withheld information from and misled shareholders, using low valuations to buy back stock between November 2006 and April 2009.
The SEC complaint says that the information withheld from employees was known to Stiefel, certain members of his family and some senior management. The SEC claims the company bought back stocks at a lower valuation even though Stiefel knew the company’s stock was worth much more.
“Stiefel Labs and Charles Stiefel profited at the expense of their employee shareholders who lost more than $110 million by selling their stock based on the misleading valuations they were provided,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office, in a statement.
Among the SEC’s allegations:
- That Stiefel Labs bought back from stockholders more than 750 shares of company stock at $13,012 per share between November 2006 and April 2007 even though the company had knowledge of stock purchase offers from five private equity firms that were based on valuations 50 to 200 percent higher than the valuation used for the stock buybacks.
- That Stiefel Labs bought back 350 shares for $14,517 per share from shareholders under the company’s employee stock plan between late July 2007 and June 2008 as well as purchasing more than 1,050 shares from stockholders outside the plan at even lower stock prices. These purchases took place, the SEC claims, while Stiefel was aware that a private equity firm had bought preferred stock on an equity valuation that was more than 300 percent higher than the valuation used for the stock buybacks.
- That Stiefel Labs bought back more than 800 shares at $16,469 per share between Dec. 3, 2008 and April 1, 2009 as it negotiated the sale of the company. The SEC claims Stiefel, as late as March 16, 2009, ordered that the details of the ongoing negotiations with GlaxoSmithKline not be revealed to employees. When Stiefel Labs announced the sale of the company to GlaxoSmithKline on April 20, 2009, the purchase value came to more than $68,000 per share, more than 300 percent higher than the price Stiefel Labs had been paying to buy back shares from its shareholders.
“Stiefel denies that it, or Charlie Stiefel, acted improperly or did anything to violate the securities laws,” said Kevin Colgan, GlaxoSmithKline’s vice president for external communications.
Charles Stiefel’s lawyers did not respond to a request for comment. He is currently serving as a senior advisor for Illinois-based RoundTable Healthcare Partners, which, according to its website, manages five investment funds totaling $1.9 billion of capital. Stiefel’s RoundTable biography says that under his leadership Stiefel Labs quadrupled sales and became the largest family-owned and -operated dermatology company in the world.
The SEC is seeking permanent injunctive relief, financial penalties and the disgorgement of ill-gotten gains with pre-judgement interest against both Stiefel Labs and Charles Stiefel. Additionally, the SEC has asked for an officer and director bar against Stiefel.
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