Pharma

GSK’s Stiefel loses $1.5M stock buyback verdict; SEC case still pending

GlaxoSmithKline (NYSE:GSK) subsidiary Stiefel Labotories must pay a former employee $1.5 million, according to a jury verdict awarded in a stock buyback case. If other verdicts go that way — including a Securities and Exchange Commission complaint — Stiefel could be on the hook for more than $100 million more. Former Stiefel employee Timothy Finerty […]

GlaxoSmithKline (NYSE:GSK) subsidiary Stiefel Labotories must pay a former employee $1.5 million, according to a jury verdict awarded in a stock buyback case. If other verdicts go that way — including a Securities and Exchange Commission complaint — Stiefel could be on the hook for more than $100 million more.

Former Stiefel employee Timothy Finerty won his case in federal court in Miami claiming that Stiefel bought back his stock at artificially low prices before the company was acquired by GlaxoSmithKline in 2009 for $2.9 billion.

“Our client is obviously overjoyed, but the outpouring of support from former employees has been dramatic,” Finnerty attorney Norman Segall told Bloomberg News.

GSK is considering an appeal.

“We are disappointed with the jury’s verdict, and continue to believe that Stiefel Laboratories and Charlie Stiefel acted appropriately with respect to Stiefel Laboratories’ Employee Stock Bonus Plan and the treatment of Mr. Finnerty in connection with that plan,” Jennifer Armstrong, a spokeswoman for Britain-based GSK told Bloomberg.

Here’s the background to Finnerty v. Stiefel Laboratories, filed in U.S. District Court, Southern District of Florida.  Finnerty is among the workers who owned stock in privately held Stiefel prior to its acquisition by GSK. In February 2009, Stiefel bought back Finnerty’s stock for $16,469. In April that year, GSK bought Stiefel for $2.9 billion — more than $68,000 per share. The suit sought to recover the difference between the stock prices. Finnerty claimed that Stiefel undervalued the stock price at which the company bought back the stock from employees.

The SEC made similar charges in its complaint filed late last year. The SEC alleged that Stiefel used low and outdated valuations when it bought back stock from employees and other shareholders between November 2006 and April 2009. According to the SEC complaint, Stiefel purchased more than 350 additional shares at $14,517 per share and also bought more than 1,000 shares from shareholders outside the plan at even lower prices between July 2007 and June 2008.  But the SEC claims CEO Charles Stiefel knew the valuation was higher due to higher valuations on the company made by private equity firms. The Blackstone Group made a $500 million investment in Stiefel in 2007, which gave the company a minority stake in the company. The SEC said that investment was made based on a valuation 300 percent higher than the price the company valued stock it bought back from employees. The SEC case has been referred to a mediator.

Stiefel was headquartered in Coral Gables, Florida before it was acquired by GSK. The company now operates as a GSK subsidiary a short distance away from GSK’s U.S. headquarters in Research Triangle Park, North Carolina.