30 Days Hath September -- Except at Biovail, Where Dates and Accounting Don't Match

A federal judge has moved Biovail (BVF)'s former top executives closer to their civil trial on accounting fraud charges by ruling there are issues for a jury to decide. But that ruling is an extremely generous interpretation of the facts, which appear to show that the company's former CEO, CFO and controller used a truck crash that killed eight people on I-90 in Illinois to manipulate their accounting and lower their revenue guidance.

This breathtaking act of cynicism was based, in part, on their apparent belief that investors and analysts somehow wouldn't check their calendars. They claimed the truck accident wiped out a shipment of the antidepressant Wellbutrin valued at up to $20 million, which would lower revenues for Q3 2003. But the crash occurred on October 1, 2003, in Q4. Accounting rules generally require revenue to be recognized only when the product is actually delivered. And Biovail's contract for the Wellbutrin also said just that, according to the SEC's lawsuit. So the crash could only have affected Q4's revenues ... unless, as the SEC alleges, Biovail was manipulating its earnings.

Former CEO Eugene Melnyk, former CFO Brian Crombie, and ex-controller John Miszuk put out a press release on Oct. 3, 2003, stating the value of the lost shipment was "$10 to $20 million." Analysts began questioning the company almost immediately. Why, they wanted to know, didn't the company have a more precise value on the shipment? And why was the shipment written off when the truck was simply rear-ended, and none of its cargo got spilled? And why was Biovail downgrading its revenue projections when it was simultaneously saying it could ramp up production to meet its obligations?

No trial date has been set, but corporate finance executives who find themselves under pressure from bosses who are desperate to meet their quarterly projections might want to remind themselves that you can manipulate the numbers, but you can't manipulate the date on the calendar.

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