SEC Charges GlaxoSmithKline Unit with Defrauding Employees in Low Valuation Stock Buybacks

Last week, the Securities and Exchange Commission (SEC) charged Stiefel Laboratories Inc. (Stiefel Labs), a subsidiary of GlaxoSmithKline PLC, and the company’s former chairman and chief executive officer Charles Stiefel with defrauding employees and company shareholders by allegedly making stock buybacks at significantly undervalued prices.

The SEC alleges that Stiefel Labs failed to report certain information to employees and shareholders, thereby enabling the company to buy back stock from employees and shareholders at undervalued prices.  According to the SEC’s complaint, which was filed in the U.S. District Court for the Southern District of Florida, “Charles Stiefel knew that five private equity firms had submitted offers to buy preferred stock in November 2006 based on equity valuations of Stiefel Labs that were approximately 50 to 200 percent higher than the valuation later used for stock buybacks.” Despite knowing of the offers, Stiefel Labs continued to purchase stocks that were below estimated equity valuations.  Shareholders and employees who sold undervalued stock to Stiefel Labs lost more than $110 million, according to Eric I. Bustillo, director of the SEC’s Miami Regional Office.

The SEC is seeking permanent injunctive relief for shareholders and employees, financial penalties, disgorgement of ill-received gains with prejudgment interest against both Stiefel Labs and Charles Stiefel. The SEC is also seeking to permanently bar former CEO Charles Stiefel from serving as an officer or director of any publicly traded company

Tagged: Enforcement Bodies, Securities and Exchange Commission (SEC)