Ex-Valeant and Philidor execs arrested on suspicion of fraud and conspiracy

Federal prosecutors have arrested former executives of Valeant Pharmaceuticals International Inc. and a defunct mail-order pharmacy it helped establish, charging them with running a high-stakes fraud-and-kickback scheme that bilked the company and its shareholders out of millions of dollars.

Thursday’s arrests are part of an ongoing investigation of the scheme, according to Preet Bharara, U.S. attorney for the Southern District of New York, who announced the arrests and charges at a Manhattan news conference. Other arrests are possible, he said.

Bharara’s office said it has charged former Valeant executive Gary Tanner and Andrew Davenport — who had been the chief executive of Philidor, the mail-order pharmacy — with two counts of wire fraud, along with money laundering and conspiracy.

The criminal complaint alleges that Tanner and Davenport conspired to enrich themselves with Valeant funds after the two helped Valeant set up Philidor in early 2013, primarily as a vehicle to market and distribute Valeant drugs.

According to the complaint, Tanner focused on building up Philidor’s business, resisted his superiors’ directives to line up other distributors for Valeant’s products and ultimately received a $10-million kickback from Davenport. Meanwhile, it said, Tanner repeatedly told Valeant he was following its rules about conflicts of interest.

The complaint alleges that in fall 2014, the two orchestrated Valeant’s agreement to buy an option to purchase Philidor, costing Valeant shareholders at least $133 million. More than $40 million of that went to shell companies controlled by Davenport, including one called End Game LP.

Davenport used that money to buy stocks, luxury goods and a $50,000 custom wine cellar, according to the complaint.

Both men were taken into custody Thursday morning at or near their homes and faced court appearances later in the day.

Tanner, 39, of Gilbert, Ariz., had been Valeant’s primary contact with Philidor and headed Valeant’s “access solutions team,� which worked to get patients’ insurers to cover brand-name Valeant medicines instead of much cheaper generic ones. Davenport, 48, of Haverford, Pa., a Philadelphia suburb, was Philidor’s largest owner as well as its chief executive.

Valeant has been under scrutiny for aggressively jacking up prices of old drugs with little or no competition and for questionable accounting practices, including prematurely reporting sales of its drugs made through Philidor.

Valeant is the target of more than 10 different government probes, plus multiple shareholder lawsuits. The former Wall Street darling’s stock price has plunged more than 90% since the company came under the microscope for its business and accounting practices.

At the news conference, Bharara cited emails that investigators uncovered in which Davenport told Tanner, using the alias Brian Wilson, he could picture them “riding off into the sunset.� Tanner responded: “Will have to keep playing the game,� according to the complaint.

“As of today, the game is up and they will not be riding off into the sunset together,� Bharara said.

Attorneys representing the two men could not immediately be reached.

Philidor was shut down early this year amid an investigation of irregularities in reporting of its financial dealings with Valeant, whose drug sales dropped significantly as a result.

In a statement, Valeant said the company, its current executives and its former CEO and chief financial officer “have not been charged at this time.�

“Valeant continues to cooperate with all relevant authorities in this matter,� the statement said, noting that Tanner left the company in September 2015 and that Davenport was never an employee.

Valeant, which technically is based in Canada but operates from headquarters in Bridgewater, N.J., sells numerous generic medicines, along with brand-name ones for conditions in the fields of dermatology, gastrointestinal disorders, eye health and neurology.

ALSO:

Shareholders vote today on Tesla’s plan to buy SolarCity

With bans of alt-right users, Twitter tests the limits of free speech

OneWest Bank shut out nonwhite borrowers while owned by Steve Mnuchin-led group, advocates say