(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.
The charitable contributions included donations to Duke University and to help fund a community swimming pool, the release said. The 2014 proxy described the loan as being needed to meet tax obligations related to equity awards and said the company had allowed the move because of the expansive share ownership requirements applied to him.
That annual regulatory filing also introduced a so-called "anti-pledging" provision that prevented further loans to company directors, executives and employees using stock as collaterol. The company said in the filing it was committed to reducing the level of pledging generally and would only allow future pledges with approval from the board of directors.
Charles Elson, finance professor at the University of Delaware and director of the Weinberg Center for Corporate Governance, said such pledging arrangements are problematic and should not be allowed by the board.
"It's considered very poor governance to permit your CEO to pledge stock, because if the stock falls, the stock will have to be sold and it could demonstrate a lack of confidence in the company," Elson said.
On Thursday, analysts attributed much of Valeant's intraday decline to concerns over business practices at the Canadian drug maker and pressure on Pearson to step down.
One of Valeant's biggest shareholders, Bill Ackman, told the Wall Street Journal in a story published on Thursday that he had suggested to a Valeant board member that Pearson might have to go. Later that day, Ackman sent an email to the company saying he still supported Pearson. Shares closed at $78.77 on Thursday, far from their August peak of $263.70. (Reporting by Caroline Humer, Michael Flaherty, and Caroline Valetkevitch; Additional reporting by Richa Naidu in Bengaluru; Editing by Chizu Nomiyama and Frances Kerry)