Stiefel Laboratories has lost a $1.5 million jury verdict to a former employee who claimed the company bought back his stock at artificially low prices before its acquisition in 2009 by GlaxoSmithKline (NYSE: GSK)
Timothy Finnerty won the judgment on May 16 in federal court in Miami against Stiefel and its former chief executive officer, Charles Stiefel. Finnerty was the first to go to trial over claims against Stiefel, based in Coral Gables, Florida, and once the world’s largest private maker of dermatology products.
More than 240 workers claim that before Glaxo purchased the company, Stiefel undervalued shares it bought back through an employee stock bonus plan. Last December, the U.S. Securities and Exchange Commission sued, claiming Stiefel and its former CEO defrauded shareholders from 2006 to 2009. It seeks more than $110 million for shareholders.
[GSK operates its U.S. headquarters in Research Triangle Park, N.C. Stiefel operates a research and development lab in RTP.]
“Our client is obviously overjoyed, but the outpouring of support from former employees has been dramatic,” Finnerty attorney Norman Segall said today in a telephone interview. Segall and attorney Peter Prieto represented Finnerty.
London-based Glaxo, the U.K.’s biggest drugmaker, is considering an appeal, said Jennifer Armstrong, a spokeswoman, in an e-mailed statement.
“We are disappointed with the jury’s verdict, and continue to believe that Stiefel Laboratories and Charlie Stiefel acted appropriately with respect to Stiefel Laboratories’ Employee Stock Bonus Plan and the treatment of Mr. Finnerty in connection with that plan,” she said.
A lawyer for Charles Stiefel, Holly Skolnick of Greenberg Traurig LLP, didn’t immediately return a call seeking comment on the verdict.
The Finnerty trial followed the refusal by U.S. District Judge James Lawrence King to certify worker claims as a group, or class-action, lawsuit.
Finnerty worked for more than 20 years at Stiefel Labs when he was fired in August 2008 as an executive sales representative, according to a March 2011 court filing. He had rights to 28.22 shares of stock, which the company bought in February 2009 for $16,469 per share, the filing said.
In April 2009, Glaxo bought Stiefel Labs for $2.9 billion, or more than $68,000 per share, and agreed to pay another $300 million depending on the company’s performance. Finnerty sought the difference between the amount he would have gotten had he remained a Stiefel shareholder until the Glaxo merger, and the amount he actually received.
“How could they be selling the company for a price they knew to be more than $60,000 a share when they’re harvesting the employees’ shares for $16,000?” Segall said.
The SEC claims that Stiefel Labs communicated misleading stock valuations to employee stockholders from 2006 to 2008, when it was controlled by the Stiefel family.
The company bought back 750 shares between November 2006 and April 2007 at $13,012 a share when Charles Stiefel knew that five private-equity firms offered to buy preferred stock for as much as 200 percent more per share, the SEC claims.
Between July 2007 and June 2008, the company bought back another 350 shares at $14,517 a share, even though a private- equity firm bought shares for more than three times that amount, the SEC claims.
The SEC case has been referred to a mediator, Nancy Lesser, court records show.
The case is Finnerty v. Stiefel Laboratories, 09-cv-21871, U.S. District Court, Southern District of Florida (Miami). The SEC case is Securities and Exchange Commission v. Stiefel Laboratories, 11-cv-24438, U.S. District Court, Southern District of Florida (Miami).