The SEC charged a GlaxoSmithKline sub and its former Chairman / CEO with defrauding employees and other shareholders in the company’s stock plan.   Stiefel Laboratories Inc., a family-owned business in Florida before being acquired by GlaxoSmithKline 2 years ago, used low valuations for stock buybacks from November 2006 to April 2009. Then-CEO Charles Stiefel kept withheld key information from employee and shareholders - but shared it with certain of his family and some senior management - while the firm bought back its stock from all others at severely undervalued prices.  At the time, Stiefel Labs was the world’s largest private manufacturer of dermatology products.x All told, Stiefel Labs and Charles Stiefel allegedly cost their employee shareholders more than $110 million by selling their stock at misleading valuations they were provided.

"Private companies ... are not immune from the federal securities laws, which protect all shareholders regardless of whether they bought stock in the open market or earned shares through a company’s stock plan.” --  Eric Bustillo, Director of the SEC’s Miami Regional Office.

Among the allegations, the SEC notes that between 12/3/08 and 4/1/09, after Stiefel Labs had decided to seek acquisition bids from several pharmaceutical companies, it began purchasing shares of its stock from shareholders at a price that Charles Stiefel knew was low and misleading - in part because he was negotiating the sale of the company. On 1/26/09, when GlaxoSmithKline expressed interest in a Stiefel Labs acquisition and signed a confidentiality agreement, Charles Stiefel ordered that the ongoing negotiations not be disclosed to employees, and he misled shareholders to believe the company would remain family-owned.  On 4/20/09, Stiefel Labs announced that GlaxoSmithKline would acquire the company for a value that amounted to more than $68,000 per share - more than 300% higher than the per share price that Stiefel Labs had been paying to buy back shares from its shareholders. Alleged Violations. Stiefel Labs violated and Charles Stiefel violated and aided and abetted Stiefel Labs’ violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC seeks financial penalties, disgorgement of ill-gotten gains with prejudgment interest against both defendants, and an officer and director bar against Charles Stiefel. The investigation continues. SEC Miami R.O. Staff Credits. Investigation by:  Drew Panahi, Kathleen Strandell, Thierry Olivier Desmet. Christopher Martin will litigate. For further details, go to:  [SEC PR 11-261, 12/12/11]