Markets

Uncanny Coincidence: Mylan Secretly Courted Analysts Right After Its CFO's Sudden Exit

By Jim Edwards

Updated on: June 16, 2010 / 4:30 PM EDT / MoneyWatch

The WSJ has a big hole in an otherwise nice scoop today. The paper reported that the SEC is investigating Mylan Pharmaceuticals (MYL) for allegedly disclosing confidential information to a select group of banks in a non-public forum. What it didn't mention is that the day before the closed meeting, the company's CFO resigned after just three months on the job!

The exit of Jolene Varney was a mystery when it occurred in early September 2009. Caris & Co. analyst David Moskowitz downgraded the stock as a result and lamented, "What is wrong inside the company"?

Varney's resignation came on the heels of the SEC questioning the soundness of multiple areas of her accounting, including sales returns, the valuation of acquisitions, goodwill, income taxes and contingencies. The resignation should have driven the stock lower, but as you can see from this chart it went up:

By amazing coincidence, Mylan held a meeting for a select group of analysts -- including folks from UBS and Goldman Sachs -- the day after Varney ankled, at which the company hinted its Q3 2009 earnings were going to be good.

Here's the timeline:

Aug. 7 2009: SEC expresses concerns about accounting policies at Mylan in letter addressed to CFO Varney.
Aug. 19, 2009: Mylan responds to SEC concerns.
Sept. 8, 2009: CFO Varney leaves the company.
Sept. 9, 2009: Mylan hosts a dozen Wall Street analysts who work at firms including UBS and Goldman; there was no public broadcast or SEC filing.
Sept. 25, 2009: SEC and Mylan discuss accounting issues on the phone.
Oct. 6, 2009: Mylan responds again to the SEC's concerns.
Oct. 14, 2009: SEC completes its review of Mylan's financials.
Oct. 29, 2009: Mylan's Q3 2009 results beat expectations and shares rise 5 percent.

The analysts who were at the meeting were able to use that information -- and management's general demeanor, which according to the WSJ was relatively jolly considering the C-suite turnover -- plus the conclusion of the SEC review a week before the earnings report to recommend a price on a stock that seemed about to jump.

Bottom line: This is Business Law 101 and every manager ought to know it. If you're discussing your company's financials, you should tell everyone all at once or say nothing. Entertaining an inner circle of investment banks at non-public meetings is tailor made to invite SEC suspicion and shareholder lawsuits.

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