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Bristol-Myers Targeted By Federal Prosecutors

Oct 10, 2002 | Bloomberg News

Bristol-Myers Squibb Co., already under investigation by the Securities and Exchange Commission, said Wednesday that federal prosecutors are probing whether the company inflated sales by offering discounts to wholesalers.

Discounts last year led to swollen customer inventories, forcing the world's fifth-biggest drug maker in April to slash 2002 profit forecasts. Bristol-Myers said it intends to cooperate and will provide information it already has shared with the SEC.

The investigation by the U.S. attorney's office in New Jersey heaps more pressure on the board and Chief Executive Peter Dolan. Bristol-Myers shares have fallen 62% in 12 months, punished by drug-development failures, competition from cheaper generic medicines and lower earnings forecasts.

"The board seriously has to question the credibility of the company in light of the fact that Peter Dolan's still there," said Linda Ray, who helps manage more than $120 million at Northstar Group Inc. Replacing Dolan "would be a start" for wooing back investors, she said.

Prosecutors may bring criminal charges against employees or the company, or they may elect to drop the case, said Paul Fishman, a defense attorney and former No. 2 federal prosecutor in New Jersey.

"The specter of a criminal investigation is just worse than an SEC investigation," Fishman said. "The more severe the consequences for the company, the more people will look to see why management and the board were not adequately addressing these issues themselves."

Bristol-Myers shares fell 70 cents to $21.63 on the New York Stock Exchange.

New York-based Bristol-Myers has said its accounting was appropriate. The company said in August that the SEC might force the company to restate results.

Bristol-Myers, which initially disclosed the overstocking in April, has said it expects reducing that inventory to cut earnings by 53 cents a share this year and 8 cents in 2003.

"Was it sneaky? Yeah. Was it a bit unethical? Yeah. But I don't know if you could technically say it was illegal," said PNC Advisors analyst Rita Freedman of the discounting matter.

U.S. Atty. Christopher Christie, the top federal prosecutor in New Jersey, didn't immediately return a call seeking comment.

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