CVS to pay $20 million to settle SEC fraud charges
By Jonathan Stempel
(Reuters) - CVS Caremark Corp, the second largest U.S. drugstore chain, will pay $20 million to settle U.S. Securities and Exchange Commission charges that it defrauded investors in 2009 during a debt offering and by accounting improperly for an acquisition.
The SEC, which announced the settlement on Tuesday, said CVS failed to disclose while marketing $1.5 billion of bonds in September 2009 having recently lost significant Medicare and contract revenue streams in its pharmacy benefits manager (PBM) business, including from the former Caremark Rx Inc that it bought in March 2007.
After CVS disclosed the problems on November 5, 2009, which resulted in a 20-percent plunge in its share price, the company further misled investors by manipulating its "retention rate," thereby inflating its ability to retain business, the SEC said.
CVS was also accused of having in November 2009 manipulated accounting for its October 2008 purchase of Longs Drug Stores Corp. The SEC said the changes improperly boosted profit by as much as 11.7 cents per share for the third quarter of 2009, enabling CVS to exceed rather than miss analyst forecasts.
"CVS broke faith with investors," Andrew Ceresney, director of the SEC enforcement division, said in a statement. "The intentional misconduct by CVS breached the core principle of fair and accurate reporting of financial performance."
The Woonsocket, Rhode Island-based company did not admit or deny wrongdoing in agreeing to settle, and on Tuesday said it is not restating any financial results.
Separately, the SEC said Laird Daniels, CVS' senior vice president for international operations and business development, agreed to pay $75,000 and accept a one-year accounting ban to settle related charges over the Longs accounting. He also did not admit or deny wrongdoing.
In court papers, the SEC said Daniels, who in 2009 was a CVS retail controller, characterized the accounting changes as turning the Longs purchase into a "good guy" rather than a "bad guy" for CVS, referring to its impact on profitability. Continued...