Bristol-Myers SettlesAug 5, 2004 | AP
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 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.
Bristol-Myers is based in Manhattan, but its largest division, the U.S. Medicines Group, is located in New Jersey. Ranked No. 92 on the Fortune 500 list, Bristol-Myers had revenue of $20.7 billion last year.
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 use of such reserves - overstating income in some quarters and understating it in others - gives investors an inaccurate picture.
"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."