Legal News

DOJ Meets Setbacks in Case Against Former Bristol Exec

By Amir Efrati

There’s some interesting white-collar news out of Newark this week.

The prosecution of Frederick Schiff, the former chief financial officer at Bristol-Myers Squibb Co., who was indicted with another former executive on securities fraud charges, is flailing.

First the government agreed to sever Schiff’s case from the other defendant’s case (the two were charged jointly), an unusual move that generally favors the defense. Then came a harshly-worded ruling last week in which a federal judge precluded prosecutors from introducing evidence and making certain legal arguments because their legal theories had continued to “morph” until the eve of the trial. Earlier this week the government filed a notice of appeal on the ruling, which will further delay a trial that was initially slated for 2006.

In 2005 the office of New Jersey U.S. Attorney Christopher Christie (pictured) charged Schiff and Richard Lane, former president of the pharmaceutical company’s world-wide medicines group, with two counts for their role in the company’s use of incentives to get wholesalers to buy more products than needed. The practice, known as “channel stuffing,” inflated sales by $2.5 billion and earnings by $900 million from 1999 to 2001.

In a news conference announcing the indictments, U.S. Attorney Christopher Christie called Schiff, who’s represented by David Zornow of Skadden, “the chief concealment officer.”

Last week U.S. District Judge Faith S. Hochberg ruled that prosecutors couldn’t tell jurors about Bristol’s stock drop on April 3, 2002, the day the company made a disclosure about the inventory issue. In other words, the government couldn’t say that the alleged omissions by Schiff about the channel stuffing resulted in massive losses by investors. In explaining the 40-page ruling, the judge said prosecutors waited too long to decide on that legal theory, which was presented to the court for the first time earlier this month. (Click here for the ruling and here and here for recent stories on the case.)

Judge Hochberg also ruled that prosecutors’ argument that Schiff made material “omissions” in filings with the Securities and Exchange Commission “defies logic” because the government had previously told the court that it wasn’t pursuing charges against him based on “misstatements” in SEC filings. Christie’s office declined to comment on the ruling.

As it stands now, the wittled-down case largely rests on alleged omissions Mr. Schiff, 60 years old, made seven years ago during analyst calls, which allegedly misled investors.

The indictments of Schiff and his co-defendant, Richard Lane, coincided with a major settlement by Bristol-Myers in which the company agreed to admit wrongdoing — on a charge of conspiring to commit securities fraud related to the channel stuffing — as part of a deferred-prosecution agreement with prosecutors, and pay $300 million to shareholders, for a total of $839 million in restitution over the matter.

Full post as published by Law Blog - WSJ.com on March 28, 2008 (boomark / email).