UPDATE 2-Goldman sold 1.3 million Valeant shares backing loan to CEO, Valeant says

Fri Nov 6, 2015 3:55pm EST
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(Adds stock movement, other background, details from 2014 regulatory filing allowing the loan, comment by finance professor, in paragraphs 3-6, 8-12)

NEW YORK Nov 6 (Reuters) - Goldman Sachs sold 1.3 million shares of Valeant Pharmaceuticals International on Thursday, a day when the drug company's shares fell as much as 20 percent, because they were securing loans made to Valeant CEO Michael Pearson that needed to be paid.

Valeant said the sale was required by Goldman and had not been done at Pearson's request. Goldman declined to comment.

Valeant shares on Friday recovered some of Thursday's lost ground, gaining about 5.5 percent to $83.15. Valeant has been under pressure over scrutiny of its high price markups and accusations it used Philidor Rx Services pharmacy to inflate revenue.

The company has denied that it inflated revenue and has opened an investigation to look closely at allegations related to its ties to Philidor.

Pearson has come under increased pressure in recent days over his handling of Valeant's business practices, and could face more criticism over the loan behind the Goldman sale. Corporate governance experts say CEOs with such loan arrangements have less to lose than other shareholders.

Pearson had pledged about 2 million shares as collateral for loans of $100 million, which was disclosed in its April 2014 proxy statement, Valeant said in a news release. Goldman Sachs required repayment of the loans and sold the shares in order to be able to repay them in full, the company said.

"It was not my desire that shares be sold now," Pearson said in the statement. "I have the complete confidence in Valeant's ability to move forward."

The loans were used for financing charitable contributions, purchasing Valeant shares, and meeting tax obligations related to vesting and payment of Valeant equity awards, among other things, the company said.   Continued...