Valeant Admits To 'Improper' Conduct, Ousts CEO, And Could Break Up

Mark

From press release as reported by Forbes.com - "saying that it would begin a search to replace longtime chief executive Michael Pearson , and that William Ackman, the chief executive of hedge fund Pershing Square Management and a major shareholder, would be taking a seat on the board.

That’s a surprise, but this is a bigger one: Valeant also admitted, in a press release, that its former Chief Financial Officer, Howard Schiller, had engaged in “improper” conduct, as had its former comptroller. The press release says that the board has asked Schiller to resign, but that he refused. In order to make room for Ackman, another director resigned instead."

http://www.forbes.com/sites/matthewherper/2016/03/21/valeant-admits-to-improper-conduct-fires-ceo-and-could-break-up/?utm_campaign=yahootix&partner=yahootix#788314a630db

Ted

@Mark & MFO Members "William Ackman, the chief executive of hedge fund Pershing Square Management and a major shareholder, would be taking a seat on the board." Is this a case of the fox guarding chicken coop ?
Regards,
Ted

Mark

@Ted - bet on it! As noted in your previously linked article on him he's lost big on Valeant so far so I expect some further financial jiggering.

heezsafe

More, for those who simply cannot turn away from watching a dumpster fire:
http://www.valuewalk.com/2016/03/valeant-pharmaceuticals-trading-halted/?all=1

claimui

Also of interest: Sequoia Fund (SEQUX) sold 1.5 million shares of Valeant sometime last week (presumably not before the stock price fell over 50%). These were the Valeant shares that Sequoia added last October to its already oversized position, which prompted two of its independent directors to resign.

WSJ: https://www.google.com/search?q=sequoia+valeant&ie=utf-8&oe=utf-8#tbm=nws&q=Sequoia+Fund+Sold+1.5+Million+Shares+of+Valeant+Pharmaceuticals

heezsafe

A pretty amusing take on "improper conduct" from Bloomberg's Matt Levine:

http://www.bloombergview.com/articles/2016-03-21/valeant-sold-some-drugs-twice

when you accuse your former CFO and former corporate controller of "improper conduct," you probably have some cultural issues to work out. Valeant characterizes those issues somewhat strangely:

As part of this assessment of internal control over financial reporting, the company has determined that the tone at the top of the organization and the performance-based environment at the company, where challenging targets were set and achieving those targets was a key performance expectation, may have been contributing factors resulting in the company’s improper revenue recognition.

You hear this idea a lot, but it always strikes me as absurd. It can't really be the case that a culture "where challenging targets were set and achieving those targets was a key performance expectation" is itself a culture that encourages cheating. What a disappointing view of human excellence and ambition: Honest achievement is impossible, so a "performance-based" culture that demands achievement is really just code for a cheating-based culture that demands accounting manipulation.

On the other hand, it is not hard to imagine a culture, a "tone at the top," that would encourage cheating. For instance, if the view from the top is that success in the pharmaceutical industry isn't so much about developing good new drugs through fundamental research, but is rather about financial engineering and insurance gamesmanship, then you could see how that might lead to accounting problems. Financial engineering and accounting manipulation are very different activities, sure, but they share a certain family resemblance that is lacking in, say, basic drug research.

TSP_Transfer

Fund Times By Kevin McDevitt, CFA | 03-23-16 | 06:00 PM
Goldfarb Steps Down at Sequoia
David Poppe remains as sole manager as the fund grapples with the fallout from its concentrated bet on Valeant.

http://news.morningstar.com/articlenet/article.aspx?id=746718