BULLETIN: SEC Says Stiefel Laboratories Inc. Lowballed Employees And Other Shareholders, Ripping Them Off In Alleged $110 Million Stock-Buyback Scheme

BULLETIN: The SEC has gone to federal court in the Southern District of Florida, alleging that Stiefel Laboratories Inc. was buying back stock from its employees and shareholders at “severely undervalued prices” and caused losses to its own people over a period of years to the tune of $110 million.

The firm and former CEO Charles W. Stiefel have been charged civilly in the alleged fraud, the SEC said.

“Stiefel Labs and Charles W. Stiefel profited at the expense of their employee shareholders who lost more than $110 million by selling their stock based on the misleading valuations they were provided,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office. “Private companies and their officers must understand that they are not immune from the federal securities laws, which protect all shareholders regardless of whether they bought stock in the open market or earned shares through a company’s stock plan.”

Once a family owned dermatology-products business, Stiefel Labs was acquired by GlaxoSmithKline in 2009. Severe lowballing by Stiefel Labs aimed at acquiring more than 1,900 employee and shareholders’ shares of the firm dated back to 2006, the SEC said.

The fraud culminated with the sale of the company after it had engaged with multiple suitors and private -equity firms and knew the money it offered employees for their shares paled in comparison to the sums offered by companies privately, according to the SEC.

When the firm changed hands, the value amounted to more than $68,000 a share, the SEC said.

Among other claims, the SEC alleged that, between Dec. 3, 2008 and April 1, 2009, “Stiefel Labs purchased more than 800 shares of its stock from shareholders at $16,469 a share even though Charles Stiefel knew that equity valuation was low and misleading, in part because he was negotiating the sale of the company.”

In January 2009, according to the SEC, GlaxoSmithKline expressed interest in a Stiefel Labs acquisition and signed a confidentiality agreement.

“As late as March 16, 2009, Charles Stiefel ordered that the ongoing negotiations not be disclosed to employees, and he misled shareholders to believe the company would remain family-owned,” the SEC charged. “On April 20, 2009, Stiefel Labs announced that GlaxoSmithKline would acquire the company for a value that amounted to more than $68,000 per share. This price was more than 300 percent higher than the per share price that Stiefel Labs had been paying to buy back shares from its shareholders.”

Read SEC news release. Read the complaint.