The Securities and Exchange Commission Tuesday charged drugstore CVS for allegedly misleading investors with "improper accounting."
CVS omitted the key fact that is was losing "significant Medicare Part D and contract revenues" in a $1.5 billion bond offering document disclosed in 2009 to investors. This key omission allegedly mislead investors about the health of CVS' business, the SEC says.
The magnitude of the financial troubles surfaced in Nov. 5, 2009, and that day CVS' stock fell 20%.
"CVS broke faith with investors in both its stock and its bonds by disguising significant setbacks for its pharmacy benefits management business," said Andrew Ceresney, director of the SEC's Division of Enforcement. "The intentional misconduct by CVS breached the core principle of fair and accurate reporting of financial performance."
The SEC also says CVS made "improper accounting adjustments" that overstated the performance of its drugstore unit. The company adjusted its accounting treatment of its buy of rival Longs Drugs in a way that allowed CVS to beat analysts' earnings expectations, CVS says.
The SEC accused CVS's retail controller, Laird Daniels, of orchestrating the improper accounting adjustments. Had the adjustments been made correctly, earnings during the third quarter in question would have been 17% lower. The accounting tricks turned the deal from a "bad guy" to a "good guy" according to an e-mail written by Daniels.
Daniels agreed to settle the case by paying a $75,000 penalty and accepting a bar from the industry for at least one year. His defense attorney didn't return a call for comment.
CVS agreed to pay $20 million to settle the SEC's charges. The attorney listed by the SEC as the defense attorney didn't have a comment.