Ex-Valeant, Philidor execs arrested for fraud, conspiracy in New York
NEW YORK — Federal prosecutors have arrested former executives of Quebec-based Valeant Pharmaceuticals and a defunct mail-order pharmacy it helped to establish, charging them with running a highstakes fraud-and-kickback scheme that bilked the company and its shareholders out of millions of dollars.
Thursday’s arrests are part of an ongoing investigation of the scheme, Preet Bharara, U.S. Attorney for the Southern District of New York, said at news conference Thursday. Other arrests are possible, he said.
Bharara’s office said it has charged Gary Tanner, a former Valeant executive, and Andrew Davenport, who had been the chief executive of Philidor, the mail-order pharmacy, with two counts of wire fraud, along with money laundering and conspiracy.
The criminal complaint alleges that Tanner and Davenport conspired to enrich themselves with Valeant funds after the two helped Valeant set up Philidor in early 2013, primarily as a vehicle to market and distribute Valeant drugs.
According to the complaint, Tanner focused on building up Philidor’s business, resisted his superiors’ directives to line up other distributors for Valeant’s products and ultimately received a $10 million kickback from Davenport. Meanwhile, Tanner repeatedly told Valeant he was following its conflicts of interest rules.
The complaint alleges that in the fall of 2014, the two orchestrated Valeant’s agreement to buy an option to purchase Philidor, costing Valeant shareholders at least $133 million. More than $40 million of that went to shell companies controlled by Davenport, including one called “End Game LP.”
Davenport used that money to buy stocks, luxury goods and a $50,000 custom wine cellar, according to the complaint.
Tanner, 39, had been Valeant’s primary contact with Philidor and headed Valeant’s “access solutions team,” which worked to get patients’ insurers to cover brandname Valeant medicines instead of much-cheaper generic ones. Davenport, 48, was Philidor’s largest owner as well as its CEO.
Valeant has been under scrutiny for aggressively jacking up prices of old drugs with little or no competition and for questionable accounting practices, including prematurely reporting sales of its drugs made through Philidor.
Valeant is the target of more than 10 different government probes, plus multiple shareholder lawsuits. Its stock price has plunged more than 90 per cent since the former Wall Street darling came under the microscope for its business and accounting practices.
At the news conference, Bharara cited emails that investigators uncovered in which Davenport told Tanner, using the alias Brian Wilson, he could picture them “riding off into the sunset.” Tanner then responded, “Will have to keep playing the game,” according to the complaint.
“As of today, the game is up and they will not be riding off into the sunset together,” Bharara said.
Philidor was shut down early this year amid an investigation of irregularities in reporting of its financial dealings with Valeant, whose drug sales dropped significantly as a result.
In a statement, Valeant said the company, its current executives and its former CEO and chief financial officer “have not been charged at this time.”
“Valeant continues to co-operate with all relevant authorities in this matter,” the statement said, noting that Tanner left the company in September 2015 and Davenport was never an employee.