Eugene Melnyk's long-running legal problems with the Ontario Securities Commission came to an end Thursday when the Biovail Corp. founder agreed to pay $565,000 in costs to conclude a dispute about a controversial 2003 truck accident involving a shipment of Biovail drugs.
The OSC also banned Mr. Melnyk for five years from acting as a director or officer of a public company for making misleading disclosures about the truck accident's impact on Biovail's earnings in the third quarter of 2003.
The sanction will sting because Mr. Melnyk is making plans to take a new pharmaceutical company, Trimel BioPharma Holdings Inc., public on the Toronto Stock Exchange.
Mr. Melnyk stood in the OSC hearing room Thursday while OSC vice-chairman James Turner told him he was formally reprimanded for his conduct. Mr. Melnyk nodded and then thanked the OSC hearing panel for its "time and consideration."
The penalties, including the formal reprimand, were negotiated in advance between OSC staff and Mr. Melnyk's lawyers, and both sides urged the hearing panel Thursday to approve the proposed sanctions.
"We are satisfied that the sanctions and undertakings … reflect appropriately the seriousness of Mr. Melynk's conduct," Mr. Turner agreed.
Kent Thomson, a lawyer representing Mr. Melnyk, said Thursday his client was "delighted that that this matter has finally come to an end after seven long years."
"I'm looking forward to a nice weekend," Mr. Melnyk told reporters after the penalty agreement was approved.
The OSC ruled in October that Mr. Melnyk acted "contrary to the public interest" in allowing misleading information to be issued in a 2003 press release, which said a serious truck accident involving a shipment of Wellbutrin drugs would cause the company to miss its third-quarter earnings target. The OSC alleged he knew the revenue loss would not be as large as the $10-million to $20-million estimate in the Oct. 3 release.
The hearing panel said it was convinced Biovail seized on the accident as a way of explaining its earning miss for the quarter, preferring to blame the miss on a one-time event instead of a broader issue with weak sales.
In its complex decision last year, the panel ruled Mr. Melnyk didn't breach any specific securities rules because the information in the press release was not misleading "in a material respect." But it nonetheless concluded his actions were still "contrary to the public interest," which is a broad and open-ended violation that does not require a finding of guilt on any specific securities law.
While Mr. Melnyk will pay $565,000 to cover OSC costs in the matter, he was not assessed any fine or financial penalty. Mr. Thomson said such a payment could not be assessed for acting "contrary to the public interest" without any specific breach of the Securities Act.
Mr. Melnyk is no longer connected to Biovail, which was bought last year by Valeant Pharmaceuticals International Inc. He sold his shares in the company last year.
The conclusion of the case comes three months after Mr. Melnyk wrapped up similar legal matters with the U.S. Securities and Exchange Commission, agreeing to a five-year ban as a director or officer of a public company in the United States, and agreeing to pay $150,000 (U.S.) in penalties. Mr. Melynk has now ended all his outstanding legal issues with both Canadian and U.S. regulators.
Mr. Thomson urged the OSC hearing panel to approve the proposed penalties Thursday, saying his client wanted the case to come to an end after seven years of scrutiny.
"It's a very long time to have the sword of Damocles hanging over any individual," Mr. Thomson said.