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By PBN Staff
By PBN Staff
WOONSOCKET – CVS Caremark Corp. and the Securities and Exchange Commission have reached an agreement to settle charges first made public in August relating to pharmacy benefits contracts and the accounting treatment of its 2008 purchase of Longs Drugs. The company does not admit any wrongdoing, but it has agreed to pay $20 million to settle the SEC action. At the same time, Senior Vice President of International Operations and Business Development Laird Daniels is being required to pay a $75,000 fine and the settlement bars him from functioning as an accountant at a publicly traded company or any other enterprise regulated by the SEC for at least one year.
In a CVS statement on Aug. 2, 2013, when the company first announced that a settlement had been reached, Executive Vice President and General Counsel Thomas M. Moriarty said that CVS was pleased “to close the chapter on these matters from 2009. … CVS Caremark remains committed to complying with all applicable laws and regulations.” The company also reported at the time that it had reserved the $20 million to pay for the civil penalty and that it would not be required to restate its earnings for any period.
The SEC, in a federal court filing in Rhode Island made Monday, said that omitted reporting significant pharmacy benefit contract revenue losses when it made a $1.5 billion bond offering in 2009. And when the company did report the expected revenue losses, its stock price fell 20 percent in one day. The federal agency also said that when it later reported its “retention rate,” CVS did not reveal that it had revised how it calculated the rate and thus obscured how much business it had lost.
“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.
In explaining the charges against Daniels, the SEC pointed to the accounting treatment of the purchase of Longs Drugs, in which the agency eliminated $189 million of personal property in the Longs stores and then reversed out the $49 million in depreciation that Longs had taken on those assets. The reversal added net income to CVS and allowed it to exceed analysts’ expectations while it was reporting the loss in projected pharmacy benefits revenue.
“The accounting standards are designed to provide the public with a fair and consistent measure of public company performance. Instead, CVS and Daniels used improper accounting tactics to give investors a misleading picture of the company’s retail pharmacy earnings,” said Paul Levenson, director of the SEC’s Boston Regional Office.
CVS shares fell 65 cents to $73.18 in trading on the New York Stock Exchange Tuesday.