SEC Alleges Fraudulent Stock Valuation at Stiefel Labs
Executive Director
On December 12, the SEC sued Stiefel Laboratories and its then-CEO Charles Stiefel for defrauding plan participants and other shareholders of $110 million by purchasing shares from them at "severely undervalued prices." Stiefel Labs, which was privately held at the time of the purchases and is currently owned by GlaxoSmithKline, established an ERISA-qualified stock bonus plan in 1975. The SEC complaint alleges that the defendants failed to disclose material nonpublic information to the appraiser, including "higher equity valuations by five investment firms, offers to purchase the Company, an investment by one of the five investment firms at a much higher equity valuation, and that the Defendants were actively shopping the Company for sale to large pharmaceutical companies." The SEC's complaint (PDF) signals, in the words of Eric Bustillo, Director of the SEC's Miami Regional Office, that private companies are subject to federal securities laws, noting that Section 10(b) of the Securities Exchange Act of 1934 "protect[s] all shareholders regardless of whether they bought stock in the open market or earned shares through a company's stock plan." In a statement, GlaxoSmithKline denied the charges and said that it plans to "vigorously defend itself against the SEC complaint."