Former Valeant Executive, Former Philidor Ceo Charged- Illegal Fraud And Kickback Scheme

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https://www.justice.gov/usao-sdny/pr/former-valeant-executive-and-former-philidor-ceo-charged-manhattan-federal-court

Department of Justice
U.S. Attorney’s Office
Southern District of New York

FOR IMMEDIATE RELEASE
Thursday, November 17, 2016

Former Valeant Executive And Former Philidor Ceo Charged In Manhattan Federal Court For Illegal Fraud And Kickback Scheme

Kickbacks Paid Out of Valeant Corporate Funds Spent on Philidor Option Were Laundered Through Secret Shell Companies

Preet Bharara, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the arrests of GARY TANNER, a former executive at Valeant Pharmaceuticals International, Inc. (“Valeant”), and ANDREW DAVENPORT, the former Chief Executive Officer (“CEO”) of Philidor Rx Services LLC (“Philidor”), for engaging in a multimillion-dollar fraud and kickback scheme. TANNER was arrested in Gilbert, Arizona, and will be presented later today before a Magistrate Judge in Phoenix. DAVENPORT was arrested this morning in Haverford, Pennsylvania, and will be presented later today before a Magistrate Judge in Philadelphia.
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Valeant is a publicly traded pharmaceutical manufacturer headquartered in Canada, with its principal place of business in New Jersey. Philidor was a specialty mail-order pharmacy that was formed in or about January 2013 with the assistance of Valeant, including the provision of financing, personnel, and supervision. During the course of Philidor’s existence, at least 90 percent of the drugs dispensed by Philidor were Valeant-branded drugs.

TANNER was the Valeant executive primarily responsible for the Philidor relationship, as well as Valeant’s alternative fulfillment (“AF”) program more generally. Valeant’s AF program attempted to cause doctors to prescribe, and patients to purchase, Valeant Pharmaceuticals instead of generic substitutes or alternatives by helping obtain insurance coverage for those drugs or providing other incentives for prescription and purchase of Valeant drugs. As part of his work at Valeant, TANNER interacted directly with Philidor’s executives, including DAVENPORT, and senior Valeant executives.

Despite being well compensated by Valeant to represent its interests, TANNER used Valeant human and financial resources to benefit Philidor and its largest owner, DAVENPORT, in a variety of ways, including by arranging for Philidor to receive $2 million in Valeant financing, as well as the support of numerous Valeant staff, including a Valeant-paid sales force that was dedicated to promoting sales through Philidor. DAVENPORT recognized the importance of TANNER’s support to Philidor’s success, stating in an email to TANNER concerning Philidor: “We both know that this endeavor would face a nearly insurmountable uphill struggle to succeed in the present Valeant environment without your confident support and the efforts of your team.”

Some of TANNER’s actions benefiting Philidor placed Valeant and its shareholders at risk. Among other things, TANNER resisted efforts to diversify Valeant’s AF program to include other commercially available alternatives to Philidor, increasing Valeant’s dependence on Philidor and what is known as “payor risk,” i.e., the risk that actions by insurers and other payors concerning Philidor could adversely affect Valeant’s financial performance. When asked directly by senior Valeant executives whether he had a financial interest in Philidor, TANNER falsely denied having any such interests.

In the fall of 2014, TANNER and DAVENPORT took advantage of Valeant’s dependence on Philidor to help orchestrate Valeant’s agreement to purchase an option to acquire Philidor (the “Option Agreement”) at a cost to Valeant shareholders of almost $300 million, including $100 million in up-front payments, a $33 million time-based milestone payment, and potential future multimillion-dollar sales-based milestone payments.

Even while TANNER was repeatedly certifying that he was in full compliance with Valeant’s Standards of Business Conduct, which prohibited any conflicts of interest without full disclosure and approval by company management, TANNER and DAVENPORT were making preparations for TANNER to receive multimillion-dollar kickbacks out of the sums paid by Valeant for the Philidor option. Among other things, TANNER and DAVENPORT set up shell companies and shell company bank accounts to be used to launder and distribute the kickbacks. While these preparations were underway, TANNER served as an adviser to his employer Valeant in its negotiations with DAVENPORT over the Option Agreement, even while he secretly advised DAVENPORT on his negotiations with Valeant using a secret Philidor email account that TANNER maintained in the name of “Brian Wilson.”

When the Option Agreement was signed in December 2010, Valeant sent $100 million to the bank accounts of the beneficial owners of Philidor, including DAVENPORT; that sum was followed soon thereafter by the $33 million time-based milestone payment. Over $40 million of those sums were sent to entities that DAVENPORT controlled, including to an entity called “End Game LP.” DAVENPORT kicked back close to $10 million of that sum to TANNER. Those sums were laundered through shell company bank accounts, including a company TANNER had created in the name of Befrielse Consolidated, LLC (“Befrielse”). TANNER used the kickback funds to purchase a new home, to pay for personal expenses, retire debts, and make investments, among other things. DAVENPORT used his share of the proceeds to purchase tens of millions of dollars in securities and to purchase luxury goods and items, including the installation of a $50,000 custom wine cellar.
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