Biovail Chairman Melnyk Gets Slammed In Legal Rink

The Ottawa Senators are just a game away from making the Stanley Cup finals. But team owner Eugene Melnyk, chairman of the controversial Canadian pharmaceuticals manufacturer Biovail (BVF) (earlier NakedShorts coverage), is getting slap-shotted around the legal rink as a posse of past alleged improprieties start catching up with him.

Monday, Biovail announced that it had received a Wells Notice from the U.S. Securities and Exchange Commission relating to a long-running investigation of its “accounting and disclosure practices for the fiscal year 2003, and certain transactions associated with a corporate entity acquired by the company in 2002.”

The announcement came less than a week after the Ontario Securities Commission rejected a proposed settlement covering charges that Melnyk failed to report trading in company shares, and didn’t disclose his control over stock held in offshore accounts. It was the first time in over three years that the commission had turned down a settlement negotiated by its staff.

But these are hardly the first setbacks in recent months for Melnyk, Biovail and their aggressive legal and public relations strategy that includes a suit, filed in Feb. 2006, seeking $4.6 billion in damages from Stevie Cohen’s SAC Capital, research house Gradient Analytics, and sundry other individuals and corporate entities, for a “massive and fraudulent disinformation campaign” and other actions intended to drive down the price of Biovail’s stock.

• In February, the SEC ended an investigation of Gradient Analytics, a research house formerly known as Camelback Research, without recommending enforcement action. The investigation was triggered by a suit filed by Overstock.com (OSTK), also the subject of a continuing SEC investigation, alleging stock manipulation.
• In March, Biovail fired Kasowitz Benson Torres & Friedman LLP, which filed the Feb. 2006 suit. The firm was accused of violating a protective order by using information obtained from Banc of America Securities in a different action when drafting the complaint; Kasowitz Benson claims that it was never properly or timely informed of the protective order.
• Last month, a federal court judge told Melnyk, in so many words, to get on with it in a defamation action brought by former Banc of America analyst Jerry Treppel, who accused Biovail of using its termination of Kasowitz to delay proceedings in that action, originally filed in 2003.

Biovail has said that it “maintains confidence in its pending lawsuits.” Which is just as well, even if it arouses suspicion that the company may be over-indulging in its most important product, the anti-depressant Wellbutrin-XL.

Biovail Acknowledges Receipt of Wells Notice
Press Release May 14 2007

'Joy' draws ex-analyst to Melnyk hearing
by Peter Brieger
Financial Post May 9 2007

OSC Panel Rejects Settlement With Biovail's Melnyk
By Joe Schneider
Bloomberg May 8 2007

Biovail in legal wrangle
by Roddy Boyd
New York Post May 4 2007

Biovail Says “Bye Bye” to Kasowitz Benson
WSJ Law Blog Mar. 23 2007

SEC terminates investigation of Gradient Analytics
Press release Feb. 14 2007

Comments

[Josh Stern:]

BVF seems like a classic contrarian bet...It has endless negative news stories, none of which apparently having a material effect on future earnings or balance sheets.

2007 May 15 08:18 AM