Biovail founder and Ottawa Senators owner Eugene Melnyk has been cleared of allegations that he broke Ontario securities laws.
An OSC tribunal, however, ruled that his conduct while at the helm of the drug company was "contrary to the public interest" — a less serious finding.
Melnyk was Biovail's chairman and chief executive in 2003 when a truck carrying a load of its anti-depressant, Wellbutrin XL was involved in an accident near Chicago. The shipment was delayed.
At the time, Biovail executives said the crash was partly to blame for a significant shortfall in revenue and profit — a disclosure that the commission contends was "materially misleading or untrue."
Melnyk, who was CEO from 2001 to October 2004 and chairman until mid-2007, took part with other company executives in news releases, an analyst conference call and investor meetings in which the truck accident was linked to the failure to meet previous guidance.
The OSC launched an investigation into Melnyk's and the company's comments about that earnings warning, and in 2008 charged Melnyk with "authorizing, permitting or acquiescing" in Biovail's misstatements.
In a 2009 hearing, the commission alleged that Melnyk and Biovail had used the crash to divert attention from other woes with Wellbutrin, which included production snags.
'Knew or should have known'
In its 88-page ruling, the OSC tribunal ruled that Melnyk "knew or should have known" that Biovail's revenue loss statement and the company's version of the impact of the truck accident were "misleading or untrue at the time."
"Contrary to his testimony, the evidence has shown him to have been an active and hands-on CEO directly involved in the conduct of Biovail's business and the disclosure decisions made by Biovail," the OSC tribunal said in its decision.
"In our view, Melnyk cannot simply claim innocence on the basis that he relied in good faith on the other senior officers or employees of Biovail."
But the tribunal found that the statements were "not, in a material respect [OSC's emphasis], misleading or untrue."
Because of that finding, the tribunal said Melnyk and Biovail had not broken Ontario securities laws, but ruled that Melnyk's conduct was "contrary to the public interest."
Biovail has already entered into a settlement agreement with the Commission — agreeing to pay $6.5 million. It also paid $36.5 million US to settle U.S. civil and criminal complaints. Several other Biovail execs have also settled OSC complaints. Melnyk was the only party who hadn't settled with the Commission.
Melnyk 'pleased'
Melnyk issued a statement Friday saying he was glad that he'd been cleared of the securities charges.
"I am pleased that the commission found that Biovail acted appropriately in issuing an earnings warning and that numerous aspects of that earnings warning were accurate," Melnyk said. "I am also pleased with the commission's finding that I did not contravene Ontario securities law at any time."
Melnyk has been given 30 days to contact the commission to arrange a sanctions hearing.
Biovail is about to merge with California-based Valeant Pharmaceuticals. In an interview earlier this week with CBC News, Melnyk said the merger was "doomed to failure" because of the high debt load the newly merged entity would have to carry.
Despite his warnings, Biovail's shareholders voted 99.9 per cent in favour of the merger.
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