An Alleged Multi-Million-Dollar Fraud
Former Valeant Pharmaceuticals Intl Inc (NYSE:VRX) executive Gary Tanner and former Philidor Rx Services LLC CEO Andrew Davenport were arrested by FBI officials on Thursday.
The two men are facing charges for allegedly engaging in a multi-million-dollar fraud and kickback scheme. According to prosecutors, they coordinated behind the scenes to boost the profile of Philidor using Valeant’s market reach. (Source: “U.S. Attorney Charges Former Valeant, Philidor Executives, Alleging ‘Fraud and Kickback Scheme’,” The Wall Street Journal, November 17, 2016.)
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The complaint says that Davenport offered Tanner $10.0 million for these favors, some of which would earn him $40.0 million in return. Under this scheme, the two men shut out other mail-order companies from getting Valeant’s business.
They also conspired for Valeant to buy an option in Philidor, all the while maneuvering to keep other Valeant executives in the dark, says the complaint. As a result, both men were arrested and will face trial. Tanner was apprehended in Phoenix and Davenport in Philadelphia.
“It was Gary Tanner’s job at Valeant to grow and promote Philidor,” said Tanner’s lawyer. “Today he has been charged with a crime for doing his job. We will demonstrate his innocence at trial.”
The attorney added that Tanner “regularly communicated to his superiors what he was doing,” and insisted that his actions were strictly in line with his position at Valeant. Lawyers representing Davenport did not submit a statement to the press.
Although these criminal charges are specific to Tanner and Davenport, they add to the growing list of scandals attached to Valeant’s brand name. The company has faced a series of investigations and lawsuits this year, namely about its financial reporting.
The summary of Valeant’s legal troubles takes up 10 full pages in its quarterly earnings report.
Critics allege that the Canadian company is more like a hedge fund than pharmaceutical firm, and that its business practices and culture are a breeding ground for fraud. In response, the company is working with regulators to execute a turnaround, but this story is just more bad press for Valeant.
The fact that Tanner used funds given to him by Davenport to buy a second home, pay down debts, and make investments is widely considered another black stain on the company’s already tarnished reputation.
