Canada's sleaziest corporate scandal

Canada's sleaziest corporate scandal

Postby Oscar » Tue Apr 26, 2016 10:49 am

Canada's sleaziest corporate scandal

[ http://www.nationalobserver.com/2015/12 ... te-scandal ]

By Bruce Livesey in News | December 14th 2015

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QUOTE: "Valeant’s price increases caught the attention of American politicians. Senator Bernie Sanders and other Congressional leaders began condemning the company. They grew more incensed when they learned Valeant was blowing them off after they'd sent letters asking the company to justify its price increases. In total, a group of 18 Democrats in Congress demanded that Valeant be subpoenaed over the price hikes of Nitropress and Isuprel. And last month, the U.S. Senate opened an investigation into Valeant."

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The view from Dimitry Khmelnitsky’s spartan 31st floor office overlooks the brooding towers of Bay Street’s financial district — the very heart of corporate Canada. Despite his enviable perch, the energetic 38-year-old investment analyst is an outsider. Born in Moscow, Khmelnitsky came to Canada 16 years ago after living in Israel. For nearly a decade, he’s worked for Veritas Investment Research Corp., an independent Toronto-based equity research firm renowned for ignoring the herd when it comes to analyzing companies.

In fact, not being a member of Bay Street’s nomenklatura is why Khmelnitsky was able to spot, long before anyone else, the early signs of what has since exploded into Canada’s biggest corporate scandal – namely Valeant Pharmaceuticals International, Inc. “This is really my issue with Valeant,” Khmelnitsky explains. “[It's the] combination of deep regulatory risks they are running and… the way they run the business being somewhere in the dark, dark grey.”

With 19,500 employees worldwide, Valeant is Canada’s largest pharmaceutical company, [ http://www.theglobeandmail.com/globe-in ... e25642880/ ] known for selling neurological, gastro-intestinal and dermatological drugs. For years, Khmelnitsky raised one red flag after another about the company’s problems, although his warnings were ignored and even mocked. “We lost clients,” he recalls. “We were kicked out of a boardroom once because people strongly disagreed with our opinions.”

While Khmelnitsky was trying to raise the alarm, Bay Street and Wall Street traders and analysts whipped themselves into a feeding frenzy over Valeant, encouraging investors to pour billions into the stock. By this summer, Valeant’s shares hit a staggering C$348 on the TSX, with its market value (the total value of all of its shares) making it the biggest company in all of Canada, worth C$111.6-billion at one point – larger than the Royal Bank of Canada. Canadian Business magazine even named Valeant’s boss, Michael Pearson, Canada’s CEO of the year.

And then it all fell apart, as Khmelnitsky predicted it might. Today, Valeant’s stock is trading at $130 – a drop of over 60 per cent since the summer – wiping out billions of dollars of Canadian investors’ holdings.

Now, Valeant is the target of as many as six U.S. government probes over price-gouging, unusual accounting, and alleged bilking of the U.S. Medicaid system. Agencies such as the Internal Revenue Service (IRS), Department of Justice, Securities and Exchange Commission (SEC) and Federal Trade Commission have targeted the company. It’s also being pursued by the U.S. Congress and by two state-level U.S. Attorney’s Office bureaus in New York and Massachusetts.

North of the border, the Canada Revenue Agency is scrutinizing the company’s books. Meanwhile, investors in Canada and the U.S. are suing Valeant for insider trading and misrepresentation. “On the moral scale, I think everybody would agree that it's an immoral company,” insists Andrew Left, a Beverly Hills, California-based short seller who helped expose Valeant’s problems, suggesting a few weeks ago it might be “the Pharmaceutical Enron.”

Others say much worse. “A nice way of putting it is that [Valeant’s] a house of cards,” says one Bay Street accountant, speaking on condition of anonymity. “A not nice way to put it is that it’s a Ponzi scheme.”

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[ http://www.nationalobserver.com/2015/12 ... te-scandal ]
Oscar
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