Canadian drug company Biovail Corporation has agreed to pay $10 million to settle federal regulators’ charges of civil accounting fraud and deceiving investors and analysts, reported Marcy Gordon for Associated Press.  SEC charges remain pending against Biovail’s founder and former chairman and CEO, Eugene Melnyk; former Chief Financial Officer Brian Crombie; and two current executives: Chief Financial Officer Kenneth Howling and Controller John Miszuk. The Ontario Securities Commission also has charges pending against the four executives.

Gordon reported on the charges as follows:

Biovail and senior executives "engaged in a pattern of systemic, chronic fraud" that distorted its quarterly and annual reports filed over four years, Mark Schonfeld, director of the SEC’s New York regional office, said in a statement. To conceal the fraud, the executives "intentionally misled the company’s auditors and the investing public, showing their complete disregard for their responsibilities to shareholders," Schonfeld said.

In October 2003, the SEC alleged, Biovail and several executives deceived investors and analysts by falsely attributing nearly half of the company’s failure to meet its third-quarter earnings target to a truck accident involving a shipment of Biovail’s antidepressant Wellbutrin XL. The accident in fact had no effect on earnings for the quarter, the SEC said.

The agency also accused the company of three fraudulent accounting schemes between 2001 and 2003: Shifting around $47 million in expenses for drug research and development onto the books of a "special purpose entity," concocting a phony transaction to record $8 million in revenue, and intentionally misstating losses from foreign currency transactions to understate a quarterly loss by some $3.9 million.

As part of the settlement, Biovail has agreed to refrain from future securities violations and to hire an independent accounting firm to oversee its books.

Attached is the SEC Press Release issued following the settlement agreement and the Complaint filed by the SEC in this case.