FDA gets serious about Reg FD:
Reuters
UPDATE - Schering-Plough, Kogan may face SEC charges
Wednesday March 12, 5:20 pm ET
By Ransdell Pierson
NEW YORK, March 12 (Reuters) - Schering-Plough Corp. (NYSE:SGP - News) on Wednesday said the U.S. Securities and Exchange Commission (News - Websites) will likely charge the company and its chief executive, Richard Kogan, with improperly releasing material information to select investors.
Schering-Plough said the likely civil charges concern violations of a federal law called Regulation FD, which prohibits companies from making selective disclosures of important information. The SEC has only infrequently taken action for violations of the 2-year-old regulation.
"I think it's fairly serious stuff," said Henry Astarjian, an analyst for Norwich Union Investment Management.
Kogan met with select investors and analysts on at least two occasions over three days in October 2002, during which the company's shares fell 20 percent.
The reasons for the decline have never been explained. Kogan met with portfolio managers of Putnam Investments in Boston, one of its biggest shareholders, only minutes before the sell-off began at 2:45 p.m. on Tuesday, Oct. 1. More than 19 million shares exchanged hands by the end of that day, three times the stock's normal daily volume.
Although investors and industry analysts marveled at the huge trading volumes on all three days of the sell-off, the company declined to comment.
On Thursday of that period, as shares continued to slump, the company held an invitation-only meeting with about 24 analysts and fund managers at its headquarters in Kenilworth, New Jersey. The news media was not allowed to attend.
Analysts later told Reuters they were shocked that Kogan had told them earnings in 2003 would be "terrible," although the company had never before given public earnings forecasts for that year.
PRIVATE MEETING, THEN BOMBSHELL
Late in the evening, 10 hours after the private meeting broke up, the company said its earnings in 2003 and 2004 would be far below Wall Street expectations due to the looming patent expiration on its top allergy drug Claritin. The bombshell warning sent shares to depths not seen since late 1996.
On Oct. 7 Schering-Plough said the SEC was investigating the private meetings. Kogan announced the following month he would give up his CEO post by April.
"The day Kogan was in Boston I knew he was meeting with certain large shareholders," said David Sobell, an analyst at Pioneer Investment Management Inc. who was not on the select list. "It was all very suspicious from the beginning."
"The fact that the SEC is serving a Wells notice obviously suggests they found enough information to move forward."
Norwich Union's Astarjian said he is looking forward to a change of management at Schering-Plough.
"We're looking for strong and honest leadership. Their management hasn't been very open over the past few years and that's what investors are looking for," the analyst said.
Schering-Plough on Wednesday said it has "an opportunity to file a legal brief setting forth its views on the matter under investigation."
Neither Kogan nor Putnam were immediately available for comment. SEC officials declined to comment.
The only SEC actions taken under Regulation FD have consisted of cease-and-desist orders against three companies: Secure Computing Corp., Raytheon Co. and Siebel Systems Inc. The three companies did not admit or deny the allegations. Only Siebel was fined, for $250,000.
All three investigations were prompted by what the SEC considered improper private communications with analysts. Motorola Inc. was also investigated by the SEC, but not sanctioned.
Schering-Plough shares closed down 13 cents to $15.75 Wednesday on the New York Stock Exchange (News - Websites), after hitting a new 6-year low of $15.35 earlier in the session.
The stock has plunged almost 70 percent since early 2001, when the company disclosed quality control problems at its plants that have delayed approvals of new medicines. Analysts and consumer groups have accused Kogan of ignoring the problems until U.S. regulators demanded they be fixed.
Shares have also been hurt by the recent U.S. patent expiration on Schering-Plough's popular allergy drug Claritin, which is now sold without a prescription for barely a third the pill's original price. Moreover, the company's hepatitis drugs are facing new competition from products sold by Swiss drugmaker Roche Holding AG (ROCZg.VX). (Additional reporting by Toni Clarke and Jed Seltzer)
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