On June 5, the U.S. Securities and Exchange Commission (SEC) announced final judgment on its charges against dermatology product manufacturer Stiefel Laboratories Inc. (Stiefel Labs) and its former CEO and chairman, Charles Stiefel. The SEC alleged that shareholders were defrauded through share buybacks that were improperly undervalued. The company and Stiefel are to pay $37 million in disgorgement and penalties.
According to the SEC, from 2006-2009, Stiefel Labs bought back stocks from mostly company employees while providing low valuations and failing to disclose pertinent information about the value of the stocks. For example, Charles Stiefel allegedly refused to inform employees about ongoing negotiations to sell the company and in 2009 sold the company for a value that amounted to more than $68,000 per share—more than 300% higher than the $16,469 Stiefel Labs paid to buy back shares from its shareholders. Stiefel Labs was ordered to pay disgorgement of $23,000,000, prejudgment interest of $2,210,000, and a civil penalty of $1,300,000.Charles Stiefel was ordered to pay disgorgement of $9,300,000, prejudgment interest of $930,000, and a civil penalty of $260,000. Stiefel Labs and Stiefel neither admitted nor denied the allegations in the SEC’s complaint.
On July 31, the SEC posted a Notice of Covered Action in reference to the case. The Notice of Covered Action alerts eligible individuals that they can file a claim for a whistleblower award. Individuals who provide the SEC with original information that leads to a successful enforcement action are entitled to a monetary reward. Whistleblowers can receive a monetary award of 10-30% of the over $37 million collected through the SEC Whistleblower Program.
The SEC established its Office of the Whistleblower in under the provisions of the Dodd-Frank Act. President Obama and others recently commemorated the tenth anniversary of the passage of that historic piece of legislation. SEC whistleblowers have received awards totaling over $500 million. In addition to monetary awards, SEC whistleblowers are entitled to anti-retaliation protections, including anonymity.
Read the SEC Press Release: Stiefel Laboratories Inc. and Charles W. Stiefel (Release No. LR-24828; Jun. 5, 2020).