U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission


Litigation Release No. 20903 / February 17, 2009

Securities and Exchange Commission v. Biovail Corporation, Eugene Melnyk, Brian Crombie, John Miszuk, and Kenneth G. Howling, 08 Civ. 02979 (LAK) (S.D.N.Y.)


Motions of Defendants Crombie, Miszuk, and Howling Denied in All Respects

The Securities and Exchange Commission announced that the United States District Court for the Southern District of New York has entered an order denying in all respects the motions to dismiss filed by defendants Brian Crombie, Biovail's former chief financial officer; John Miszuk, the company's former controller; and Kenneth G. Howling, its former chief financial officer. In a Memorandum Order, the court stated it "has considered defendants' contentions and concluded they are without merit." Former Biovail chief executive officer Eugene Melnyk is a defendant in the action but did not file a motion to dismiss.

The Commission's amended complaint alleges that in October 2003 Melnyk, Crombie, and Howling schemed to deceive investors and analysts by falsely attributing nearly half of Biovail's failure to meet its third quarter 2003 earnings guidance to a truck accident involving a shipment of one of Biovail's products. In this way they intentionally misstated both the effect of the accident on Biovail's third quarter earnings as well as the value of the product involved in the truck accident. The accident, in fact, had no effect on third quarter earnings.

The Commission's amended complaint also alleges three accounting schemes that affected reporting periods from 2001 to 2003.

  • Crombie, over several reporting periods in 2001 and 2002, improperly moved off Biovail's financial statements and onto the financial statements of a special purpose entity approximately $47 million in expenses incurred in the research and development of some of Biovail's products.
  • Crombie and Miszuk concocted a fictitious bill and hold transaction to record approximately $8 million in revenue in the second quarter of 2003.
  • Miszuk intentionally misstated foreign exchange losses that caused its second quarter 2003 loss to be understated by about $3.9 million.

Biovail previously resolved these claims against it by consenting to a judgment that, among other things, permanently enjoined it from violating the antifraud and other provisions of the federal securities laws, imposed a $10 million civil penalty, and ordered it to pay disgorgement of $1. Earlier this month, the Court entered a stipulated judgment against Melnyk on the Commission's claim that he violated stock accumulation disclosure provisions by failing to include in his Schedule 13D filings Biovail shares held by several off-shore trusts that Melnyk controlled. That judgment permanently enjoins Melnyk from future violations of Section 13(d) of the Exchange Act and Rules 13d-1 and 13d-2 and imposes a civil penalty in the amount of $1,000,001.

The litigation remains pending against Crombie, Miszuk, and Howling on the claims alleged against each of them and against Melnyk on the securities fraud claim.

For further information, see Litigation Releases No. 20506 (March 24, 2008) and No. 20880 (February 4, 2009).



Modified: 02/17/2009