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Tuesday March 25, 5:01 AM Biovail execs face SEC charges; company settles Photo: Reuters Click to enlarge TORONTO/WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission said on Monday that Canada's Biovail Corp will pay $10 million to settle a probe into fraudulent accounting, but the drugmaker's founder, Eugene Melnyk, and three other current and former executives still face charges. In addition, Canada's major securities regulator, the Ontario Securities Commission, said it has scheduled a hearing for April 22 on issues concerning Biovail. Melnyk, Biovail's former chief executive and chairman, who is also its largest shareholder, said the "vast majority" of the allegations in the case do not pertain to him. "I intend to vigorously contest the absolutely false allegations of the SEC and OSC and am confident that I will prevail once all the facts are heard," he said in a statement. Melnyk is also owner of the Ottawa Senators of the National Hockey League. In settling with the SEC, Biovail, Canada's largest publicly traded pharmaceutical company, did not admit to any wrongdoing and agreed to have an independent consultant examine its accounting and related functions. Still facing SEC charges are former Chief Financial Officer Brian Crombie, current Controller John Miszuk and current CFO Kenneth Howling. "This was the CEO, CFO, the controller and the current CFO," said Jacob Frenkel, a former SEC enforcement official and criminal prosecutor who now handles white-collar criminal matters. "This is a case where the buck stops with everyone responsible. Under those circumstances it was difficult not to charge the company." None of the charges against Melnyk or the other three have been proved in court. Calls to lawyers for the current and former executives were not immediately returned. The SEC investigation includes an incident in 2003 when Biovail attributed a failure to meet its third quarter forecast to a trucking accident involving a shipment of the company's Wellbutrin drug. HID LOSSES The SEC said current and former senior Biovail executives were obsessed with meeting quarterly and annual targets, and they overstated earnings and hid losses to deceive investors. "When it ultimately became impossible to continue concealing the company's inability to meet its own earnings guidance, Biovail actively misled investors and analysts about the reasons for the company's poor performance," the SEC said. Biovail said Howling and Miszuk are being reassigned to non-officer positions within the company. It named an interim CFO, but declined further comment. Melnyk, who has been at odds with the company and has threatened to propose his own dissident board at the June annual meeting, denied that he misled investors and said most of the allegations did not even relate to him. The SEC complaint alleges that in October 2003, Biovail and some of its executives schemed to deceive investors by falsely attributing nearly half of Biovail's failure to meet its third quarter forecast to a single truck accident. The complaint also alleges that over several reporting periods in 2001 and 2002, Biovail improperly moved about $47 million in research and development expenses off its financial statements and on to the financial statements of a special purpose entity. The SEC also claimed that Biovail intentionally misstated foreign exchange losses that caused its 2003 second quarter loss to be understated by about $3.9 million. "Each of Biovail's fraudulent accounting schemes had a material effect on Biovail's financial statements for the relevant quarters and years and was engineered by Biovail's senior management in order to inflate Biovail's reported earnings," the SEC said. Shares of Biovail reversed the day's earlier declines to close at C$12.04, up 2.2 percent, on the Toronto Stock Exchange. The stock rose 53 cents, or 4.6 percent, to $12.01 on the New York Stock Exchange. ($1=$1.02 Canadian) (With additional reporting by Doris Frankel in Chicago) (Editing by Peter Galloway)