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Valeant Pharmaceuticals International Inc. signage is displayed outside the company's headquarters in Bridgewater Township, New Jersey, U.S., on Thursday, Aug. 4, 2016. (Ron Antonelli/Bloomberg)
Valeant Pharmaceuticals International Inc. signage is displayed outside the company's headquarters in Bridgewater Township, New Jersey, U.S., on Thursday, Aug. 4, 2016. (Ron Antonelli/Bloomberg)

Ex-Valeant executive, past Philidor CEO charged in kickback scheme Add to ...

A former employee of Valeant Pharmaceuticals International Inc., and the head of now-defunct mail-order pharmacy Philidor Rx Services LLC have been criminally charged in the United States for allegedly engaging in a multi-million dollar kickback scheme that defrauded the Canadian drug maker.

The U.S. Attorney for the Southern District of New York announced on Thursday that Andrew Davenport, the ex-chief executive officer of Philidor, and Gary Tanner, a former vice-president of Valeant, were charged with multiple counts, including wire fraud and conspiracy to launder money.

Mr. Davenport was arrested in Pennsylvania, and Mr. Tanner in Arizona.

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Read more: The Valeant e-mails: ‘We are on the brink of a catastrophe’

The complaint alleges Mr. Davenport paid Mr. Tanner about $10-million (U.S.) in kickbacks for championing Philidor’s interests, including spearheading a transaction in late 2014 that saw Valeant acquire an option to buy Philidor, which resulted in Mr. Davenport making $40-million personally.

Mr. Tanner also allegedly worked to protect Philidor’s business with Valeant even when Valeant executives were pressing to branch out to competing pharmacies.

In e-mails with Mr. Tanner, Mr. Davenport evoked images of the old Western Butch Cassidy and the Sundance Kid and talked about how they would “ride into the sunset” together.

Once a darling of Wall Street, Valeant came under intense scrutiny starting last year for concealing its ties to Philidor, a previously little-known specialty pharmacy that dispensed mainly Valeant-branded drugs to patients.

The Laval, Que.-based drug maker has been on a downward spiral ever since, with its stock plunging and results under pressure. It’s facing litigation and multiple regulatory probes in the United States and Canada, as its newly minted management team tries to restore trust and improve its roster of products.

Mr. Davenport couldn’t be reached for comment.

Mr. Tanner’s lawyer, Howard Shapiro, said in a statement: “It was Gary Tanner’s job at Valeant to grow and promote Philidor. He performed that job exceptionally well, greatly benefiting Valeant’s shareholders, and regularly communicated to his superiors what he was doing.

“Today he has been charged with a crime for doing his job. We will demonstrate his innocence at trial.”

According to the complaint, soon after Mr. Tanner joined Valeant in late 2012, he suggested that his new employer partner with Philidor to support the Valeant unit tasked with incentivizing doctors and patients to use Valeant’s drugs as opposed to cheaper generics. The agreement was signed by eight executives at Valeant, including the company’s CEO.

Court filings show Mr. Davenport was Philidor’s largest beneficial owner, holding 6 per cent of equity through a trust and about 31 per cent through End Game LP, which was owned by another company tied to Mr. Davenport.

In his role, Mr. Tanner was responsible for supervising Valeant’s relations with Philidor and for the rest of 2013, he promoted Philidor’s interests at Valeant and resisted efforts of other Valeant executives to diversify beyond Philidor.

But in November, an unnamed Valeant executive noticed that Mr. Tanner had been acting as though he had a managerial role at Philidor. Soon, this person shared his suspicion that Mr. Tanner held an undisclosed equity interest in Philidor with him and other executives at Valeant. According to the complaint, Mr. Tanner “repeatedly denied” owning any equity interest in Philidor.

During the second half of 2014, Valeant began discussing its interest in acquiring Philidor.

In October, 2014, Valeant was relying on Mr. Tanner to represent its interests in the negotiations with Philidor. But Mr. Tanner was playing both sides: according to the complaint, Mr. Tanner was offering advice to Mr. Davenport to bolster the amount Valeant would pay for Philidor.

U.S. federal prosecutors allege Mr. Davenport told an unnamed shareholder of Philidor that he had planned to give Mr. Tanner a portion of his payout for Mr. Tanner’s “work on behalf of Philidor.”

In December, 2014, Valeant entered into an option agreement to buy Philidor. It included an immediate $100-million payment to Philidor’s beneficial owners and ultimately ended up costing Valeant about $300-million. As part of the deal, Mr. Davenport was paid $40-million, with the prospect of millions more in the future.

Bank records show that he transferred roughly $10-million to a Delaware company named Befrielse Consolidation LLC, which was linked to Mr. Tanner. Court filings show Mr. Davenport used the funds to buy a new house, install a custom wine cellar and purchase more than $20-million in securities. Mr. Tanner used his proceeds to pay down student loans and buy an additional home. Mr. Tanner “actively concealed” his financial relationship with Mr. Davenport from Valeant, the complaint says.

Further, the men attempted to hide and disguise the source of the funds, which were alleged to have been laundered through several shell companies.

After sliding early Thursday morning, shares of Valeant rose 1.3 per cent in New York.

“The company, former CEO, former CFO, and current executives have not been charged at this time,” Valeant said Thursday in a news release. “The counts issued today include allegations that the charged parties engaged in actions to defraud Valeant as a company. Valeant continues to co-operate with all relevant authorities in this matter.”

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